The FTSE 100 followed the lead set by US and Asia markets overnight, rising 62 points or 0.96% to 6,554 in response to the Federal Reserve's decision to 'taper' its bond buying stimulus policies.
The US central bank said it would reduce the amount of bonds it purchases every month under quantitative easing to $75 billion from $85 billion, starting in January.
Although anxiety over the gradual withdrawal of this enormous liquidity has depressed markets of late, the announcement was greeted with relief that the uncertainty was over and that the Fed's move indicated the underlying strength of the US economy, which bodes well for the rest of the world.
Outgoing Fed chairman Ben Bernanke (pictured) reassured markets that the decision to stop 'printing' dollars would not be accompanied by an early rise in interest rates. Bernanke, who leaves the central bank next month, added the approach would be flexible, and that the amount of QE could be raised or lowered each month in response to economic circumstances.
'We're seeing encouraging numbers in terms of household spending - for example, auto purchases - fiscal drag is reduced and there are stronger numbers internationally,' Bernanke told a press conference after the decision by the Federal Open Markets Committee.
Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, said: 'I'm not surprised Bernanke started the taper. He didn't want to leave office with the tap running on full. However it ends, this way he can say he started the mopping up process.'
Gold dropped $29 to $1,206 an ounce and the pound firmed to trade at $1.6358 against the dollar.
There was further good economic news for the UK as retail sales rose 0.3% in November, the largest rise in three years. Chris Williamson of Markit, the economics data provider, acknowledged the data was volatile but nevertheless said it pointed to 'a broad-based upturn' in the economy.
Serco Group (SRP.L) advanced nearly 5% or 22p to 470.5p after the outsourcing group agreed to repay the government £68.5 milllion for overcharging on contracts to tag criminals.
WPP Group (WPP.L) gained 2% or 27p to £13.25 after buying a majority stake in ClickMedia, a Vietnam-based social media marketing agency.
Keller Group (KLR.L) rose 3.6% or 39p to £11.43 after the engineering specialist said ful-year trading had been in line with market expectations.