Britain's top shares powered ahead at the start of the new trading year on Tuesday as upbeat economic data from the United States, Europe and China boosted risk appetite and helped investors set aside fears over the euro zone debt crisis.
The pace of growth in the US manufacturing sector accelerated in December, its best month since June, as US construction spending in November surged to a near 1-1/2 year high.
The data added to earlier optimism triggered by better Chinese manufacturing and service data and German unemployment which fell more than forecast.
Stefan Angele, head of investment management at Swiss &
Global Asset Management, which has around 80 billion Swiss francs of funds under management, said that while the European sovereign debt crisis posed a big threat, "any positive news that reduces uncertainty and improves sentiment might lead to a re-pricing of equities on a higher level".
The UK benchmark ended up 127.63 points, or 2.3 per cent, at its session peak of 5,699.91 -- its highest close since Oct. 28. The index ended well above its 200-day moving average around 5,610.
Miners, which fell around 30 per cent in 2011, contributed more than a third of the FTSE 100's gains, led higher by a 9.5-per cent jump in Kazakhmys, as the strong manufacturing data from the United States and China buoyed the outlook for demand in the sector.
Jefferies International said that equities are cheap compared to bonds, but the asset class could be trapped in a range until the velocity of money increases in the global
"Equities will show modest double digit returns but for the best part of the year will be range bound, in our view. The implicit faith equity investors have in policy makers will be tested again and may mean trendless markets until QE (quantitative easing) is adopted," the investment bank said in a note.
Lex van Dam, hedge fund manager at Hampstead Capital which manages $500 million of assets, said that if the market remains firm "people will have to buy because of the fear of missing out".
"The fundamentals won't be as important right now unless they really change significantly either way," he said.
Buyers came in for banks, with Barclays the best off, up 5.8 percent, as Citigroup upped its target price for the lender to 245 pence from 230 pence and repeated its "buy" rating, saying it believes BarCap can be a winner in the consolidating world of capital markets.