Britain's leading share index rose for the fifth day in a row on Tuesday as higher crude prices lifted oil producers and after data showed US factories continued to expand in August despite credit market jitters. The FTSE 100 closed up 61.6 points or 0.98 percent at 6,376.8.
The UK benchmark index has gained nearly 9 percent since the US Federal Reserve cut its discount rate on August 17 to soothe a credit squeeze triggered by a crisis in US subprime lending market, but is still down 5.6 percent from its peak in mid-July.
European shares also finished higher on Tuesday. "The FTSE spent most of the morning worrying there might be bad news when the States opened," said Tim Hughes, head of sales trading at IG Index. "But the ISM data had given further gusto to the positive sentiment."
The US Institute for Supply Management's closely watched survey of manufacturing showed the index of national factory activity easing to 52.9 last month from 53.8 in July. Analysts had been looking for a more modest dip to 53.0, although any reading above 50 still points to expansion.
"Recoveries...can be very fickle. They can reverse as quickly as they kind of appear," Hughes said, adding that investors remained cautious. Oil shares were the biggest winning sector, adding 27 points to the index, as US crude prices climbed above $74 a barrel.
Index heavyweight Royal Dutch Shell advanced 3 percent, also boosted by a UBS upgrade to "buy" from "neutral", and rival BP added 1.9 percent. Gas producer BG Group was up 2.4 percent. In the mining sector, Kazakhmys advanced 2.6 percent after the copper miner posted a 22 percent rise in half-year core profit and announced a $700 million return to shareholders via a buyback and dividends as it expects the commodity boom to continue. BHP Billiton tacked on 1.3 percent, Rio Tinto added 1.9 percent and Lonmin put on 2 percent.
Investors will also keep a close eye on US non-farm payrolls data on Friday and the Bank of England's interest rate decision on Thursday. Analysts expect the Bank of England to leave rates unchanged at 5.75 percent.
Liberty International dipped 1.2 percent after J.P. Morgan cut its rating on the stock to "underweight" from "neutral", while Hammerson fell 0.5 percent after the same investment bank cut its price target. These losses came even as Hammerson, the British retail property specialist, said it was confident about its growth prospects, despite worries about the strength of the retail market following the global credit squeeze.
Lender Northern Rock slipped 1.2 percent to 732 pence after UBS cut its price target on the stock to 805 pence from 880 pence. Alliance & Leicester, Barclays and Standard Chartered also eased slightly, but HBOS, Royal Bank of Scotland and Lloyds TSB were up. Shire lost 1.2 percent after the drugmaker said it withdrew a limited amount of its attention deficit hyperactivity disorder skin patches because of difficulties some users have removing them.