The FTSE 100 Index gained more than 1% today amid rising hopes that policymakers will hold off from tackling inflation with interest rate hikes.
A sharp rise in the cost of living to 3.3% in May was overshadowed by hints from Bank of England Governor Mervyn King that attempting to resolve the inflation spike from soaring oil and food prices in the next 12 months would cause "unnecessary volatility".
This cheered investors and the Footsie gained 67.3 points to 5861.9 by the close. The blue-chip index was around 2% ahead at one stage but gave back some of its gains after a poor start on Wall Street, as inflation and housing data were badly received.
Banks were among the leading beneficiaries of the rally with Barclays up 11.5p to 340.5p, adding to the advances made in the previous session on confirmation of its fundraising plans.
Halifax Bank of Scotland also rose strongly, up 10.75p to 326.75p, a gain of more than 3% ahead of this week's keenly awaited trading statement.
A positive note from broker Dresdner Kleinwort helped the banking sector, with ratings upgrades for Barclays and Royal Bank of Scotland, which rose nearly 3%, or 6.25p to 241.25p.
Premier Inn and Costa Coffee owner Whitbread also fared well, rising 4% as the City cheered the group's first quarter figures.
The leisure firm's like-for-like sales growth of 7.1% sent shares up 48p to 1270p, earning Whitbread a place near the top of the risers board.
This spot was occupied by mining firm Eurasian Natural Resources - marked up by brokers at ABN Amro this week - which gained 6% or 87p to 1491p. Other miners on the front foot included Lonmin and Anglo American, which cheered 137p to 3266p and 135p to 3472p respectively.
An easing back of oil prices from yesterday's new record near US$140 a barrel meanwhile did little good for airline British Airways, down 1.25p to 238p, while low-cost rival easyJet shed 5p to 308p.
The leading Footsie faller was publishing group Reed Elsevier, down almost 3% after a downgrade for European media firms from analysts at Morgan Stanley, who believe that the sector will remain under intense pressure in the coming months. The stock fell 17.5p to 592p.
Housebuilders were in the red once more, with blue chip Persimmon down 8.25p at 413p. In the second tier beleaguered Barratt Developments was off 7p at 90.5p - reversing gains seen yesterday.
Redrow and Taylor Wimpey followed close behind with falls of 5.25p to 167p and 2.75p to 76.5p respectively. Berkeley slipped 15.5p to 75p.
The Footsie's four biggest risers were Eurasian Natural Resources, up 87p to 1491p, Amec up 43.5p to 951p, Lonmin up 137p at 3266p, and Anglo American which added 135p to 3472p.
The four biggest fallers were Reed Elsevier, down 17.5p to 592p, Home Retail Group off 6.5p at 220p, Persimmon down 8.25p at 413p, and Standard Chartered, which closed down 29p at 1611p.