Renewed hopes that Greece will close a deal with private bondholders to ease its debt burden powered world markets to sizeable gains yesterday.

Despite figures showing that the number of Americans seeking unemployment benefits rose by more than expected, the FTSE-100 index closed 1%, or 68.3 points, higher at 5859.7 in a clear sign investors expect a positive outcome in Greece's debt swap with private investors – the result of which is not expected until today.

The gains in European markets were even stronger, with the Dax and Cac 40 in Germany and France both up by more than 2%.

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Banks had a volatile day, despite the latest boost to the survival chances of the be- leaguered euro, with Barclays eventually 1.7p higher at 240.7p but Lloyds Banking Group down 0.1p at 34.3p.

The Bank of England kept interest rates at 0.5% and left the size of its quantitative easing programme unchanged at £325 billion.

This had little bearing on the performance of the pound, which was up 0.5% against the dollar at 1.58 as traders left the safety of the greenback to higher yielding currencies. The optimism that Greece will exceed the 66.7% threshold needed for its debt swap gave the euro a boost, with sterling down slightly at 1.19 against the single currency.

Miners were boosted by the improvement in risk appetite, with Vedanta Resources up 49p at 1393p and Antofagasta 38p higher at 1268p.

There was also an upbeat reaction to blue-chip results, with Morrisons and Aviva both ahead by 2%.

The supermarket chain's full-year figures were slightly ahead of expectations, leading to a rise in its share price of 4.9p at 289.7p.

The chain, which has 455 stores in the UK, recorded an 8% hike in underlying profits to £935 million in the year to January 29, as like-for-like sales rose 1.8%. The City had been expecting profits of around £922m.

There was also a further shares rally for insurer Aviva as chief executive Andrew Moss increased his operating targets in the wake of a 6% rise in 2011 profits. The shares were up 5.6p to 356.8p and have rallied by around 30% since December as the eurozone crisis eases, a trend reflected in a jump in Aviva's solvency cushion to £3.3bn at the end of February.

The update was well received by followers of rival Prudential, which climbed 7.5p to 710p ahead of its update on Tuesday.

Outside the top flight, shares in Cineworld were 4% higher at 207.25p, after it reported a 10% rise in pre-tax profits in the year to December 29 to £33.4m.

The biggest Footsie risers were Hammerson up 21.3p at 411.3p, Petrofac ahead 84p at 1675p, Burberry up 71p at 1508p, and IMI 38p ahead at 989.5p.

The biggest fallers were Man Group down 4.3p at 141.8p, Fresnillo off 15p at 1824p, Schroders down 11p at 1550p, and International Power off 1.2p at 358.2p.