London markets bounced back as inflation fears and the energy crisis noticeably calmed.

A steadying of oil and gas prices helped equities broadly, although meant energy stocks were among the weaker performers, and allayed worries that inflation would continue to soar and hammer profits.

The FTSE 100's rebound was particularly boosted by strong pharmaceutical stocks after AstraZeneca confirmed it would fully acquire Caelum Biosciences.

London's top flight closed 80.06 points, or 1.14%, higher at 7,108.16 on Wednesday.

Chris Beauchamp, chief market analyst at IG, said: "Stocks are in rebound mode after Tuesday's drop, as some of the stagflation concerns ease and bargain hunters pile in. A small drop in Treasury yields has eased some of the pressure on equities, and with market internals approaching 'washout' levels again, the urge to buy the dip has come storming back.

"One more day of Q3 remains, and volatility remains elevated compared to the summer levels, but current market action still has a 'clearing the decks' feel to it as the last vestiges of summer trading are swept away."

In Europe, German stocks were again slightly behind the pace as parties met to discuss the country's next coalition government.

The German Dax increased by 0.77% and the French Cac moved 0.83% higher.

Across the Atlantic, the Dow Jones had only a modest jump as it appeared to suffer from end-of-quarter caution.

Meanwhile, sterling dropped lower to take it into negative territory for the year against the dollar amid continued concerns over a deteriorating UK economic outlook.

The pound was down 0.07% versus the US dollar at 1.341 and was flat against the euro at 1.156.

In company news, fashion retailer Next lifted as it posted its fourth profit upgrade over the past year.

The group said it expects pre-tax profits to reach £800 million for the year to January, up 6.9% on 2019 and above previous guidance of £764m.

Shares rose by 314p to 8,394p despite also warning over significant inflation.

Elsewhere, Royal Mail dropped heavily after it was downgraded by analysts at UBS. The delivery giant closed 42.2p lower at 437p after the investment bank gave the firm a "sell" rating as it cited that rising labour costs could pose a risk to its margins.

Upper Crust owner SSP finished 15.7p lower at 274p after it said its sales are still far short of pre-pandemic levels despite a recent rebound in trade.

Semiconductor group Alphawave, which only listed in May, saw its value slashed by more than half after a FT Alphaville report disclosing close ties between the firm's ownership and some of its largest clients. Shares plunged by 189.6p to 180.4p.

The price of oil made only timid movements on Wednesday, dipping slightly as it continued its recoil from the three-year high it struck early on Tuesday. Brent crude decreased by 0.12% to $79.12 per barrel.

The biggest risers on the FTSE 100 were AstraZeneca, up 359p at 8,833p, Next, up 314p at 8,394p, IAG, up 4.68p at 186.68p, and Hikma, up 60p at 2,447p.

The biggest fallers of the day were Royal Mail, down 42.2p at 437p, Taylor Wimpey, down 3.05p at 155.65p, Admiral Group, down 54p at 3,126p, and Polymetal, down 20.5p at 1,233p.