THE FTSE 100 surged higher on Wednesday amid renewed hopes that US-China trade talks will result in a positive outcome.

London's premier index hit its highest level in four months, following US peers and closing the day up 57.7 points, or 0.81%, at 7,190.84.

"Stocks are higher this afternoon as traders are hopeful about the US-China trade talks that are taking place. US treasury secretary, Steve Mnuchin, said the talks were going well.

"President Trump will potentially ease up on the March deadline, and that is seen as a positive sign," said David Madden, analyst at CMC Markets.

"Overall, we have heard very little about the discussions, but importantly, what we have heard has been positive so traders are happy to buy into the market."

In stocks, Whitbread rose towards the top of the FTSE 100 after unveiling plans to return another £2 billion to investors following its £3.9bn sale of Costa Coffee.

The Premier Inn owner also plans to slash costs by a further £220 million and potentially double the hotel chain's size to more than 170,000 rooms, including at least 110,000 in the UK.

Whitbread shares were up 138p, or 2.9%, at 4,901p.

Dunelm's stock was riding higher after the retailer reported a 24% increase in pre-tax profit for the six months ended December 29 to £70m.

Revenue rose 1.2% to £551.8m with like-for-like revenue growth of 6.9%, which was bolstered by online sales growth.

Shares closed up 22p, or 3.1%, at 739p.

The pound held firm following January inflation data showing prices fell below the Bank of England's target for the first time in two years thanks to the new cap on energy prices.

Figures from the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) fell to 1.8% last month, the largest drop since 2016, from 2.1% in December.

January inflation came in below economists' expectations and undershot the central bank's target of 2%.

Inflation was dragged down by lower electricity, gas and petrol prices between December and January, which was partially offset by lower air fares.

Sterling was trading 0.2% lower against the US dollar at the London market close at 1.285. Versus the euro, the pound was up 0.1% at 1.140.

Fiona Cincotta, of City Index, said: "Whether sterling can hold this level will depend on Brexit developments tomorrow as Parliament is due to debate and vote on amendments to the Brexit process.

"However, this is by no means last chance saloon as Theresa May announced there will be a further vote on 27th February."

In Europe, Germany's DAX was up 0.37% while France's CAC 40 was up 0.44%.

A barrel of Brent crude was trading at 63 US dollars, an increase of 1.31%.

The biggest risers on the FTSE 100 were Smurfit Kappa up 158p at 2,424p, DS Smith up 15p at 351p, Coca Cola HBC up 81p at 2,694p and Rolls Royce up 28p at 941.6p.

The biggest fallers on the FTSE 100 were Tui down 56p at 830.8p, Ocado down 24p at 924.8p, Tesco down 4.3p at 219.2p and Morrisons down 3.35p at 236.25p.