The London market started the fourth quarter strongly yesterday as positive economic data from the US and renewed optimism over Spain's banks boosted investor confidence.

The FTSE-100 Index closed 78.4 points higher at 5820 after stress tests published on Friday showed the Spanish banking industry to be less vulnerable than expected.

Better-than-expected US manufacturing data for September also lifted spirits as a key purchasing managers index reading rose to 51.5 from 49.6, signalling a return to growth.

The pound dropped against the euro at 1.25 amid increased optimism over the fate of the single currency and it was also down against the dollar at 1.61.

Barclays saw its shares rise more than 3% or 7.5p to 222.4p, while Royal Bank of Scotland was 9.4p ahead at 266.4p and Lloyds Banking Group advanced 1.1p to 39.97p.

The support of Xstrata's board for the takeover by Glencore International, in a deal which will create a new company worth around £56 billion, ensured the blue-chip miner's shares rose 22.5p to 980p, up 2%.

Expectations that the deal will trigger further merger and acquisition activity in the sector spurred on rival miners with Anglo American up 74p to 1891p and Eurasian Natural Resources leaping 6.8p to 315.5p.

Glencore, meanwhile, closed down 1.1p at 342p, despite spending much of the session ahead.

Plumb Center firm Wolseley added 41p to 2683p as investors awaited full-year results from the building supplies firm.

AstraZeneca was the biggest faller, dropping 30p to 2925p, after the pharmaceutical giant's new boss stopped a planned £2.8 billion share buyback scheme.

Supermarkets Sainsbury and Morrison featured on the shortened fallers board after rival Aldi reported an increase in operating profits to £102.9 million. Sainsbury was down 1.7p at 345.8p while Morrison was off 1.6p at 283.6p.

Gambling firm Sportingbet saw its shares rise nearly 4% or 2p to 53.5p after it rejected a £350m takeover proposal from bookmaker William Hill.

The online gaming firm said the approach undervalued the company. William Hill shares also rose 1.9p to 318.7p.

The biggest Footsie risers were Anglo American up 74p at 1891p, Polymetal International ahead 40p at 1125p, Royal Bank of Scotland up 9.4p at 266.4p and IMI ahead 32.5p at 932.5p.

The biggest Footsie fallers were Astrazeneca down 30p at 2925p, Sainsburys off 1.7p at 345.8p, Babcock International down 4.5p at 922.5p and Morrisons off 1.3p at 283.9p.