A key concession from regulators helped shares in Barclays and Royal Bank of Scotland rally as the banking sector pushed the London market higher.

Fresh guidance from the Basel Committee for Banking Supervision will soften rules on capital requirements, raising hopes among investors for better returns at those firms with investment bank operations.

It helped the wider FTSE 100 Index lift 17.2 points to 6757.2, though the boost to the sector was held back in the wider market by continued economic uncertainty caused by Friday's disappointing US jobs figures.

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Meanwhile, France's Cac 40 and Germany's Dax enjoyed a positive session.

On currency markets, sterling went downhill ahead of inflation figures that are expected to show the Consumer Prices Index rate remaining near 2% - bolstering the likelihood of low interest rates being prolonged.

The pound was down a cent at 1.64 US dollars and also against the single currency to 1.20 euros.

In London, the Basel guidance changes, together with the start of the banking sector's reporting season in Wall Street looming into view, saw Barclays climb 3%, or 8.1p, to 291.7p and RBS lift 11.1p to 368p.

But it was Morrisons that set the pace in the top flight amid speculation that the retailer is under pressure from US activist investors to raise cash by offloading some of its stores through sale and leaseback deals.

The Bradford-based chain, which last week posted a poor Christmas trading update, is reportedly planning an £800 million raid on its property estate as it looks at ways of building up a cash pile that can be returned to investors.

With chief executive Dalton Philips keen to buy time from the City for his turnaround plan, shares rallied with a rise of 6% or 15.2p to 251.3p.

Signs of a pick-up in merger and acquisition activity also pepped up investor interest after engineer and project manager Amec announced a potential deal worth £1.9bn to buy Nasdaq-listed firm Foster Wheeler.

Amec will issue shares as part of the proposed combination but this was not enough to dampen enthusiasm after chief executive Samir Brikho called the tie-up a "compelling proposition" for shareholders. The blue-chip stock rose 26p to 1105p.

In the latest festive trading updates, pub company Greene King rose 26p to 922p after like-for-like sales at its managed estate rose 5% in the six weeks to January, up 12% on the previous year.

The biggest FTSE 100 risers were Morrisons, up 15.2p to 251.3p, Fresnillo up 24.5p to 703.5p, Randgold Resources up 123p to 3835p and Royal Bank of Scotland up 11.1p to 368p.

The biggest FTSE 100 fallers were Tullow Oil down 31.5p to 878p, Schroders down 39p to 2590p, SSE down 20p to 1344p and British American Tobacco down 42p to 3042.5p.