Update 17.30: US markets rallied as politicians were optimistic a deal could be reached to ease the impact of the fiscal cliff – a series of tax hikes and spending cuts – before it’s due to hit next year.

Talks got under way on Friday when Democrat and Republican leaders met with president Obama. The speaker of the house of representatives John Boehner said the meeting was ‘constructive’.

Investors also took comfort from stronger-than-expected housing figures, with sentiment among US house builders rising to a six-year high in November, as home resales rose in October.

The positive noises spurred on a risk rally in US equities as the Dow Jones Industrial Average added 1.39% to 12,763, the Standard & Poor's 500 index gained 1.67% to 1,382, and the Nasdaq Composite index took on 1.78% to 2,904.

Oil prices increased throughout Monday trade as tensions grew in the Middle East amid calls for a ceasefire in the Gaza-Israel conflict. Brent crude for delivery in next month ticked up 2.56% to $111.74 a barrel.

Markets in Britain also enjoyed a rally as the FTSE 100 took on 2.36%, or 132 points, to 5,737 and the Mid-250 index added 1.45%, or 168 points, to 11,745.

Barclays (BARC.L) managed to the lead the FTSE 100 gainers for most of the day, adding 10.8p, or 4.6%, to 245p, following a positive note from Goldman Sachs, as analysts upgraded the bank to ‘buy’ with a 12-month target price of 320p.

Miners also rose in the risk rally Eurasian Natural Resources Corporation (ENRC.L) added 8.9p, or 3.45%, to 268p; Randgold Resources (RRS.L) gained 267p, or 4.2%, to £66.17; and Kazakhmys (KAZ.L) took on 21p, or 3.21%, to 675p.

Security group G4S (GFS.L) dropped 2.4p, or 1%, to 242p and services company Serco (SRP.L) slipped 4.5p, or 0.8%, to 545p after a downgrade from analysts at Credit Suisse to ‘neutral weighting’.

FTSE bounces back on fiscal cliff hopes

09.07: The positive start to negotiations between President Obama and the Congress over the looming ‘fiscal cliff’ facing the US economy have soothed investors' nerves after last week's market falls.

Leaders of the US Senate and House have said said they would be 'flexible' in addressing their political differences to avoid a simultaneous hike in taxes and cuts to spending that would suck $600 billion (£377 billion) from the US economy next year and push it back into recession.

The FTSE 100, which fell 2.8% last week, responded to an overnight rally in Asia with a bounce of 53 points or 0.9% to 5,657, with miners Eurasian (ENRC.L), Kazakhmys (KAZ.L), Evraz (EVRE.L) and Vedanta Resources (VED.L) leading the way with gains of between 2% and 4.4%.

ARM (ARM.L) jumped a further 2.5% to 728.5p after the chip designer’s announcement on Friday that it could use a £478 million cash pile to boost dividends or buy back shares.

In a similar vein BP (BP.L) gained 2.3% or 9.8p to nearly 426.4p after the Sunday Times reported the oil giant planned to use up to £3.7 billiion of proceeds from the sale of its stake in the TNK Russian joint venture to mount a share buy back. BP’s management is said to be anxious to keep investors sweet in case they need to ward off a takeover bid from the likes of Exxon in the US or Royal Dutch Shell (RDSb.L), up 11p or 0.5% to £21.08.

Meanwhile the price of oil rose as the escalation of the Israeli-Palestinian conflict in the Gaza Strip pushed Brent oil futures to over $109 a barrel. United Nations secretary genearl Ban Ki-moon is due to visit Cairo today to support efforts by Egypt to arrange a ceasefire.

Barclays (BARC.L) led financial stocks higher with a gain of nearly 3% to 241.3p after it rebutted reports that it had paid a bribe to secure a licence in Saudi Arabia.

HSBC (HSBA.L) advanced 1.7% or 10p to 606p after it revealed it was in talks to sell its $9.3 billion (£5.8 billion) stake in China's Ping An insurance company as part of a drive to streamline its business.

The rally also pushed Aviva (AV.L) 2% higher to 326.4 amid reports the insurer was getting close to appointing a new chief executive to replace Andrew Moss, who was ousted earlier this year in the 'shareholder spring'.

The main FTSE 100 faller was Intertek (ITRK.L), down 1.6% to £27.89 after a fourth quarter trading statement prompted more profit taking in the industrial testing group. Broker Seymour Pierce maintained its 'hold' stance saying the group had displayed a resilient performance in all divisions but that this was reflected in the shares, which it said traded on 22.3 times prospective earnings.

Outside the main index the biggest highlights were oil rig maker Lamprell and online grocer Ocadao.

Lamprell (LAM.L) initially sank 5% to but quickly recovered to trade 1.4% or 1.25p down at 68p after its fifth profits warning. It said full-year losses would be around $105 million (£66 million), seven times bigger than previously forecast. The assessment follows an external audit of its main projects: one of its biggest problems is in the Caspian Sea where the company blames low productivity and the lack equipment for a $25 million.

The company, which last month lost its chief executive and two senior managers, said it remains in talks with its lenders over obtaining a waiver on some of its banking covenants. The shares have lost nearly three quarters of their value this year, valuing the company at £177 million.

By contrast Ocado (OCDO.L) shot up 20% or 12.4p to 73p after announcing its banks had granted an extension to a £100 million loan facility and that it had raised £35.8 million in a placing with shareholders. In an update on trading it also said sales growth had accelerated this quarter. The company has been dogged by fears over its competitive and financial position and even after this morning’s rally its shares have fallen 35% this year.

Analysts at Panmure were unimpressed and retained their 'sell' advice, noting that altough Ocado had the funds to survive for some time 'that does not mean the [business] model is suddenly a good one'.

Majestic Wine (MJW.L) added 2.6p or 0.5% to 467.5p as it impressed analysts with a 4% rise in half-year profits and a 1.2% rise in like-for-like sales in the start of the second half. These are viewed as good figures given the pressures on consumer spending.

But Mitie (MTO.L) fell 13p or 4.5% despite the outsourcing group posting a 1.9% increase in profits and a 5.6% rise in revenues in its first half of the year. It also forecast revenue growth would accelerate in the second half but this failed to convince investors who worry about the challenges facing the sector.

European markets also rose with the Euronext 100 index nearly seven points or 1% higher at nearly 642. The euro gained 0.28% against the dollar to $1.2773 as eurozone finance ministers neared agreement with the International Monetary Fund on a two-year funding deal for Greece.

Elsewhere on currency markets the yen traded at just over 81 to the dollar after falling heavily on a call by Shinzo Abe, leader of the opposition Liberal Democratic Party, for the bank of Japan to print 'unlimited yen' to push down the currency and help the country's exporters. The LDP is widely expected to win a general election that has been called for 16 December.

The pound traded slightly up against the dollar at $1.59. Gold gained 0.5% to stand at $1,722 an ounce.

See our FTSE data pages to see today's other risers and fallers