Britain's top shares closed at three-year highs on Tuesday thanks to strength in miners and oil majors while British Airways and BSkyB rose in anticipation of strong earnings.
Economic data bolstered expectations that the Bank of England will cut interest rates for the first time in two years on Thursday also supported the FTSE 100 share index, which closed up 37 points or 0.7 percent at 5,327.5, its highest close since December 2001.
A Confederation of British Industry survey showed British retail sales remained weak in July although there was little effect from the first set of bomb attacks on London early in the month.
"The case for lower base rates in the UK this week is pretty overwhelming in our view. Nevertheless, there are still some doubts in the market, perhaps spurred by weekend reports of a 'shadow' MPC decision which was very close indeed, with one member even voting for a rate hike. But we don't think the decision to cut will be very close," said David Brown, chief European economist at Bear Stearns.
Oil firms BP, Shell and BG Group all rose as crude oil stayed above $61 a barrel after the death of Saudi Arabia's King Fahd and US refinery outages.
However, British Airways shrugged off the high oil price and news of an explosion outside its offices in Tehran to gain 1.6 percent with traders citing record results from rival Ryanair and a technical breakout as it peaked at 15 month highs.
BA reports on Friday while BSkyB, which added 1.9 percent, has full-year figures out on Wednesday with the market expecting robust results and subscriber numbers.
Miners were strong as Antofagasta benefited from copper reaching a new high and Credit Suisse First Boston raised mining stocks to "overweight", with Rio Tinto also expected to report bullish earnings on Wednesday.
Shares in diversified aerospace company Smiths Group were the worst performing, slipping 2 percent after it reported a rise in exceptional items to 19.9 million pounds in 2004. Smiths said it expects to post strong full-year sales and profit growth.
Fund manager Amvescap lost 1.6 percent after its profits fell slightly below expectations and it reiterated it had not received a fresh bid approach from rival CI Financial while Alliance & Leicester recovered from a slight dip earlier to close 0.3 percent higher after flat results, with the bank saying unsecured loan quality was strong and stable.
"There is nothing fundamentally wrong with it (the bank); it's just dull," said Jane Coffey, a fund manager at Royal London Asset Management.
Among mid-cap stocks Morgan Crucible added 2.3 percent after the engineer reported a surge in first-half earnings as a turnaround plan and strong American and Asian markets offset weak demand for its products in Europe.
But Numis Securities cut its stance on the stock to "hold" from "add", citing the stock's recent run.
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