The London market rebounded amid hopes of a recovery in the eurozone and a slowdown in domestic price rises.
The FTSE-100 Index closed 37.6 points higher at 6611.9 after figures from the single currency area heralded hopes Britain's biggest trading partner may finally be emerging from recession.
Economic sentiment in Germany rose to a four-month high - although separate survey data showed eurozone industrial production was up by a disappointing 0.7%.
Germany's Dax and France's Cac 40 were both higher on the latest figures, ahead of crucial eurozone GDP figures due out today which could highlight a return to growth in the second quarter.
In the UK, the decline in the rate of inflation to 2.8% in July from 2.9% in June was in line with expectations, with economists pointing to more falls in the cost of goods and services in coming months.
Sharp discounting by fashion retailers helped offset higher prices at the fuel pumps.
The rise in the cost of living figure has taken on added significance since it was linked to the Bank of England's new "forward guidance" policy.
The likelihood of a future spike in inflation would result in a "knockout" to the pledge to keep interest rates at a 0.5% low until unemployment has fallen below 7%.
Alpari analyst Craig Erlam said: "There's going to be a lot more attention paid to this figure now that new Bank of England Governor, Mark Carney, has set an inflation threshold for forward guidance to remain in place.
"It looks like inflation remains well anchored and there's little threat in the short term of interest rates being reviewed."
On the currency markets, the pound was flat against the dollar at 1.55 but weaker UK inflation saw it gain strongly on the euro to 1.17.
In a light session for corporate news, insurance company Resolution, which owns a number of closed life funds, was one of the biggest risers in the top flight after it reported a 17% rise in half-year operating profits to £191 million.
The figure came in ahead of the market consensus, while the company also said that it was confident in further progress over the remainder of the year as it targets Britain's ageing population.
Shares were 5.8p higher at 329.5p, a rise of nearly 2%. Elsewhere in the sector, shares in Prudential were down 17p to 1215p after investors took profits following the positive reaction to its results yesterday.
The biggest risers on the FTSE 100 were Fresnillo up 62p to 1165p, International Airlines Group 8.4p firmer to 320.6p, John Wood 20.5p stronger to 915.5p and Rio Tinto 71p ahead to 3263p.
The biggest fallers were Old Mutual down 5.2p to 196.1p, Prudential down 17p to 1215p and ITV 2.2p weaker to 163.3p.
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