London's FTSE 100 Index rallied by one per cent as investors sought out bargains in the wake of the slump in markets caused by geopolitical tensions.

The rebound was triggered by a rally on Wall Street on Friday after Russia called an end to military exercises on Ukraine's border and US war planes attacked militants in northern Iraq.

There was also encouragement from China after inflation stayed at 2.3 per cent in July, compared with the official target for the year of 3.5 per cent.

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The FTSE 100 Index was 65.5 points higher at 6632.8, having recently fallen to its lowest level since April due to geopolitical pressures. The pound was steady against the US dollar and euro, at 1.68 and 1.25 respectively. Amid the general improvement in risk appetite, airline stocks recovered some altitude after a better session for oil prices.

British Airways owner International Airlines Group was near the top of the FTSE 100 risers board, up four per cent or 14.1p to 331.2p, while budget carrier easyJet improved 30p to 1258p.

Miners also benefited from the improved sentiment, with mining giant Rio Tinto up by four per cent, or 122p to 3502p as a result of broker upgrades, including one from Credit Suisse.

Housebuilder Perismmon set the pace at the top of the risers board, up 55p to 1272p, as new figures from the Council of Mortgage Lenders allayed fears that new mortgage rules will cause a "hard brake" on the property market.

On a shortened fallers board, sentiment was weak in the banking sector as Royal Bank of Scotland lost some of its recent gains to stand 6p lower at 339.6p and HSBC eased 1.6p to 625.9p.

Friends Life was down 4.3p to 315p in the wake of a downgrade from Deutsche Bank as the broker removed its buy rating on the stock.

Centrica was down 0.1p to 307.8p after the EDF nuclear power business in which it has a 20 per cent stake said it will shut down a second reactor at Heysham in Lancashire as well as two reactors at Hartlepool as a precaution after a boiler defect was found at Heysham earlier this year. The move is expected to reduce Centrica's earnings per share by around 0.3p this year.

Outside the top flight, construction firm Balfour Beatty rose two per cent after it revealed that it had received and rejected a further merger proposal from rival Carillion.

Balfour shares were 5.8p higher at 243p and Carillion lifted 3.3p to 324p as the latter company said it was still considering its options.

The biggest FTSE 100 risers were Perismmon up 55p at 1272p, International Airlines Group ahead 14.1p at 331.2p, Ashtead up 37p at 906.5p and Schroders ahead 82p at 2295p.

The biggest fallers were Royal Bank of Scotland down 6p at 339.6p, Morrisons off 2.8p at 166.8p, Friends Life down 4.3p at 315p and Randgold Resources off 35p at 5075p.