UK blue chip shares closed higher on Tuesday, powered by a rally in financial stocks after Monday's mauling, while British Airways bounced 3.7 percent as it tackled high oil prices with a fuel surcharge.
Financials saw bank group Barclays rise two percent and insurer Royal & Sun Alliance up 1.7 percent. The sector nursed some of Monday's biggest casualties amid concern that strong US job creation would trigger a steep, quick rise in US interest rates, potentially snuffing economic growth.
Automotive and aerospace engineer GKN - a major dollar earner - benefited from a rise in the US currency on the prospect of higher rates, closing up 2.4 percent.
The FTSE-100 index finished 59.5 points or 1.4 percent higher at the day's peak of 4,454.7, sweeping back up from a five-week low and recouping more than half of Monday's 100-point loss.
Market watchers said investors were buying back into some of the most heavily-hit stocks of Monday's rout, but some were still concerned that the United States had a difficult path to pick between counterbalancing inflationary pressures and pushing the economy back into stagnation.
"The market really doesn't know which way to go. On one side of the watershed is a traditional economic recovery: higher inflation, boom and bust. On the other side is the possibility that nothing much has changed and profound price pressures exist and we could drop back," said Jeremy Batstone, Director of Investment Strategy at stockbrokers Fyshe Group.
Investors flocked to the banking sector with Asian-focused bank Standard Chartered up 3.8 percent after it said it was confident of delivering improved performance in 2004 a revenue growth accelerates.
Abbey National, a perennial focus of bid speculation, rose 4.7 percent after The Guardian newspaper reported that US bank Citigroup had appointed advisers to consult over a possible bid for Abbey.
Citigroup declined to comment. Some of those defensive shares which held up relatively well on Monday came under pressure with cigarette maker Imperial Tobacco down 0.7 percent.
Kingfisher fell 0.7 percent after Deutsche Bank trimmed its profit forecasts for the home improvements retailer due to poor spring weather in Britain and in France, but kept the shares on its UK focus list.
Among the midcaps, Spirent jumped 13.3 percent after the telecoms equipment testing company said it saw signs of a pickup in customer spending and said first-quarter trading was in line with expectations.
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