Euro optimism drives markets up

London’s leading share index closed up 4 per cent, or 204.7 points, at 5,294.1 – the biggest increase since May 2010 and the largest percentage gain of the year.

Although some nervousness remains about the crucial vote in Germany tomorrow to pass new powers for the eurozone’s rescue fund, hopes are mounting that a more permanent agreement, including a multi-trillion pound rescue plan and recapitalisation of European banks, will be struck.

The Dax in Frankfurt and the CAC 40 in Paris both made gains of more than 5 per cent as Greece looks set to pass austerity measures that will unlock the latest €8 billion tranche of aid, which will avoid a default next month. In the US, the Dow Jones Industrial Average also made solid progress in early trading.

However, Michael Hewson, market analyst at CMC Markets, warned that investors were trading on “hopes rather than expectation”, adding that “volumes haven’t exactly been great”.

There were no fallers on the FTSE 100 but higher metal prices saw the mining stocks surge ahead.

Gold added almost $28 dollars to reach $1,654 per ounce, while silver and copper futures also recorded strong gains.

Vedanta Resources was the biggest riser, closing up 12 per cent, or 126p at 1,196p. Silver miner Fresnillo jumped 157p to 1,681p.

Banking shares were also major beneficiaries of the improved sentiment, with Barclays up 12.5p at 168.5p and Royal Bank of Scotland bouncing 1.4p to reach 25p.

Will Hedden, sales trader at IG Index, said yesterday’s recovery on the FTSE 100 provided “some breathing space” as the index gained further distance from the psychologically important 5,000 mark.

He said investors were piling into “risk-on stocks”, with crude oil in the US making major gains.

“This serves to underline the positive attitude over improved European and global economic sentiment,” he said. But he added: “Has the game really changed? The recent range may be fairly wide, with 5,400 to 4,950 being the rough edges of a very jagged two-month picture, but whilst these remain intact, we aren’t any closer to a concrete longer term outlook.”

Away from the FTSE 100, pub owner Mitchells & Butlers said a slow-down in food sales cut like-for-like sales growth to 0.5 per cent in the nine weeks to 17 September, down from 2.8 per cent in the summer when comparisons were distorted by last year’s World Cup.

Shares in the firm, which faces possible takeover interest from Tottenham Hotspur owner Joe Lewis, dropped 6p to 246.5p. However, this is still way above the 230p-a-share offer price signalled by Lewis’s investment vehicle.

Among the Scottish stocks, AG Barr closed up 22p at 1,210p despite the Irn-Bru maker unveiling flat half-time profits.

Meanwhile, Celtic revealed that one of its non-executive directors, Brian Duffy, has bought 16,165 ordinary shares in the football club at 37.9p per share.