Britain's biggest players GlaxoSmithKline and AstraZeneca both surged ahead while it was Shire that topped the risers' board with a climb of nearly 8%.
The flurry of activity helped the FTSE 100 Index rise 56.5 points to 6681.8 as investors overcame fears about the prospect of more sanctions against Russia in relation to the crisis in Ukraine.
Sentiment was also high in Europe, with Germany's Dax and France's Cac 40 both ahead strongly. In New York, the Dow Jones Industrial Average was up too with the mood boosted by a generally positive climate of US first quarter earnings results.
On currency markets, the pound held firm at 1.68 US dollars and 1.22 euro.
AstraZeneca shares closed almost 5% higher after weekend reports that larger US rival Pfizer had made a tentative approach that could value it at more than £60 billion.
It has reportedly resisted the advances, with no talks currently under way, but it is thought that Viagra maker Pfizer could come back with a fresh approach.
Astra shares were almost 10% higher at one point, adding £4.6bn to its worth, though this later settled back to a closing price 178.5p higher at 3960p.
The rise was outstripped by the gain posted by GlaxoSmithKline after a three-part deal was announced with Swiss-based firm Novartis that included a combination of the pair's consumer healthcare arms.
Glaxo was more than 5%, or 81p higher at 1640p as it emerged that the UK company will use some of the £9.5bn proceeds from the sale of its oncology portfolio to Novartis to return cash to shareholders.
It will also acquire Novartis' global vaccines business, adding four products.
The round of deal-making in the drugs sector most benefited shares in Shire, which rose 221p to 3146p, while Hikma Pharmaceuticals was 74p higher at 1570p in the FTSE 250 Index.
Elsewhere, shares in drinks giant Diageo recovered slightly from the sell-off in the wake of a disappointing trading update to stand 9p higher at 1838p, while Royal Mail was 13p stronger at 522p.
Retailers were also doing well after decent weather over the Easter weekend fuelled hopes for improved trading.
Marks & Spencer rose 7.8p to 442.3p and Sports Direct International pulled back from recent weakness to climb 31p to 830p. FTSE 250 Index rival JD Sports Fashion was 82p higher at 1,817p.
The biggest FTSE 100 risers were Shire, up 221p to 3146p, GlaxoSmithKline up 81p to 1640p, AstraZeneca up 178.5p to 3960p and Sports Direct up 31p to 830p.
The biggest fallers were Randgold Resources down 113p to 4605p, Fresnillo down 20p to 848p, Babcock International down 25p to 1191p and Standard Chartered down 14p to 1311.5p.