European markets have surged in the wake of a landmark decision by the US Federal Reserve to scale back America's massive economic stimulus programme.

The reduction of $10 billion (£6.1bn) in monthly asset purchases ended months of uncertainty and offered another signal that the world's biggest economy is on the mend.

With the Fed also pledging to keep interest rates near to zero for the foreseeable future, the FTSE 100 Index followed major overnight gains on Wall Street by climbing more than 1%, or 92.6 points, to 6584.7.

Starting in January, the Fed will reduce its bond-buying to $75bn (£46bn) a month from $85bn (£52bn).

Fed chairman Ben Bernanke said the bank was likely to make similar moderate cuts over the course of next year before ending the programme by the end of 2014, as long as the country's economy continues to improve.

The announcement saw New York's Dow Jones Industrial Average climb 2% on Wednesday, triggering the strong gains in Europe in the latest session with Frankfurt's Dax and Cac 40 also surging ahead.

But the fizz had gone out of the rally when Wall Street reopened, with the Dow Jones flat and traders taking stock as they digested disappointing US jobs figures.

In London, BAE Systems, which generates a large chunk of its revenues from the US defence market, was 7.9p higher at 442p, a rise of 2%.

Other big risers included financial services firm Hargreaves Lansdown, up 45p to 1316p, and William Hill after a gain of 15.6p to 391.2p.

With few fallers as the top-flight powered ahead, even retailers came out on top as they pared some of the losses suffered in the previous session on fears that fierce competition on the high street was set to squeeze margins this Christmas.

Sainsbury's was 0.9p higher at 366p, while Marks & Spencer crept 2.7p up to 444.2p after suffering a previous fall on the back of a downgrade from broker UBS. G4S fell by 2%, or 4.8p to 248.9p, in the wake of a second referral to the Serious Fraud Office (SFO), this time after the Ministry of Justice uncovered further problems with two contracts for facilities management in the courts.

The Government department said it does not have evidence to confirm that dishonesty has taken place, but after seeking legal advice referred both matters to the SFO. It comes on top of a criminal investigation into G4S and rival Serco after they overcharged the Government for tagging offenders, some of whom were found to be dead, back in prison or overseas.

The biggest risers were Carnival, up 120p to 2312p, Petrofac up 51p to 1140p, William Hill up 15.6p to 391.2p and WPP up 48p to 1346p.

The biggest fallers were Fresnillo down 29p to 698p, Randgold Resources down 105p to 3811p, G4S down 4.8p to 248.9p and Amec down 2p to 1040p.