The FTSE 100 has risen after Ukrainian president Petro Poroshenko claimed he had agreed a ceasefire with Russian leader Vladimir Putin.
A short statement from the Ukraine president's office read: 'President of Ukraine Petro Poroshenko had a phone conversation with president of Russia Vladimir Putin.'
'The conversation resulted in an agreement on ceasefire regime in the Donbas. The parties reached mutual understanding on the steps that will facilitate the establishment of peace.'
However, an earlier reference to a 'permanent' ceasefire was deleted from the statement, while the Kremlin disputed the claim.
'Russia cannot physically agree on a ceasefire because it isn't a party in the conflict,' Putin's spokesman Dmitry Peskov told Russian news agency RIA Novosti.
'Putin and Poroshenko did in fact discuss steps that would provide for a ceasefire between the militia and Ukranian armed forces.' Reports of shelling in Donetsk also undermined claims of a peace settlement.
The news sent stock markets around the world rallying. The FTSE 100 hit 6,897, its highest level in 14 years, before retreating to 6,884, up 55 points, or 0.8%, on the day. The CAC 40 was up 1.2% and the DAX 30 rose 1.4%. Russia's Micex 10 index was meanwhile up 3.7%.
The pound has meanwhile continued its fall on fears of a 'yes' vote in the Scottish independence referendum. Sterling has dropped to $1.6463, having hit a five-month low overnight, after a YouGov survey put the lead for the 'no' campaign at just six points, down from 14 in the middle of August and 22 last month.
The pound's brief rally on fresh data pointing to the strength of the UK economy's recovery proved short-lived. Sterling had hit $1.6490 on news the UK's 'all-sector' purchasing manager's index (PMI) reached 59.8 in August, a nine-month high, with the services sector figure at 60.5, the highest level since last October.
Strong performance in the UK's services sector is helping to offset manufacturing, where the pace of growth is continuing to slow. PMI data for the sector fell from 56.4 in July to 53.7 in August. Any reading above 50 indicates expansion.
'The rate of UK economic growth accelerated in August, according to the Markit/CIPS PMI surveys, but the upturn has become ever more dependent on the domestically-oriented services and construction sectors as growth slowed sharply in manufacturing,' said Chris Williamson, chief economist at Markit.
'The data send mixed signals to policy makers, suggesting the debate over whether the economy can withstand higher interest rates will remain intense.'
British Airways owner International Airlines Group was among the biggest risers on the FTSE 100, with news of the Ukraine ceasefire likely to place further pressure on the oil price. The price of brent crude yesterday fell to its lowest settlement price since May last year due to the prospect of slowing demand in China and Europe, which have reported weak factory data. It has now pared some of those losses to trade at $101.98 a barrel.
International Airlines Group (ICAG) rose 2.1% to 372.4p, while budget airliner EasyJet (EZJ) was up 1.9% at £13.55. Weir Group (WEIR) continued to rise, jumping 2% to £27.61 after analysts at Credit Suisse yesterday upgraded the valve and pump manufacturer to 'outperform' from 'neutral'.
Ashtead (AHT) hit record highs, jumping 2.8% £10.15, after the tool hire company posted a 33% rise in first quarter profits and raised its full-year profits guidance.