Blue-chip shares bounced back today as worries about European banking began to fade and traders warmed to the latest US corporate earnings.

The FTSE 100 Index had lost more than 2.5% last week, partly driven by fears over Portugal's financial sector, but better sentiment at the start of the week helped the top-flight climb by 56 points to 6746.1, a rise of 0.8%.

France's Cac 40 posted a similar increase while in Frankfurt the Dax lifted more than 1%.

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On Wall Street, the Dow Jones Industrial Average was also enjoying a positive session. It came as quarterly results from US banking giant Citigroup helped add to expectations of a strong corporate earnings season - despite it announcing it would pay a 7 billion US dollar (£4.1 billion) fine to settle a federal probe over subprime mortgages.

On currency markets, sterling lost ground ahead of the publication of latest UK inflation figures, with the pound slipping to below 1.71 US dollars and also falling against the single currency towards 1.25 euros. In London, equities were buoyed over the latest update from takeover target Shire, which has entered into talks with US suitor AbbVie.

The pharmaceuticals firm said it had received a new takeover proposal worth more than £31 billion, which it would be willing to recommend.

Shire, which specialises in drugs to treat attention-deficit disorder and rare diseases, added it is now in discussions with AbbVie over the terms of the new proposal, which values Shire at 5330p a share. The stock rose 33p to 4903p.

Topping the FTSE 100 risers' board was Mike Ashley's Sports Direct, which rose nearly 4%, or 25p, to 723p, after the retailer said it would enter the Australia and New Zealand markets for the first time. Sports Direct has signed up to a partnership on the venture with MySale, the online discount retailer backed by Top Shop and BHS mogul Sir Philip Green. MySale shares rose nearly 2%, or 4p, to 214p.

Tesco was also a strong riser after a note from Cantor Fitzgerald upgraded the UK's biggest supermarket to buy from sell, saying it was 35% undervalued compared to its peers.

A reorganisation of UK operations could help recapture customers and lead to a return of sales growth in 2015, the broker added. Tesco improved more than 2%, or 6.4p, to 284.4p.

Rolls-Royce shares gained 13p to 1050p after Airbus, the European aerospace group, said it was to sell new versions of its A330 passenger jet powered by the British company's Trent 7000 engines.

The biggest risers on the FTSE 100 Index were Sports Direct up 25p to 723p, Petrofac up 37p to 1198p, Johnson Matthey up 84p to 3056p and SABMiller up 84p to 3297p. The biggest fallers on the FTSE 100 Index were easyJet down 22p to 1244p, Burberry down 14p to 1438p, Fresnillo down 8.5p to 919.5p and Randgold Resources down 35p to 5085p.