The FTSE 100 has increased by almost three per cent, with a rise of 150 points, the Guardian reports.
This surge comes as London catches up with recent gains on Wall Street an Asia.
The major gains have been in banking stocks, with the Royal Bank of Scotland up by 12 per cent and Lloyds Banking group and Barclays both up by around eight per cent. The blue-chip index has hit over 5,000 in early trading.
France's CAC index was also one per cent higher this morning, together with a 0.8 per cent rise in Germany's Dax.
The US Dow Jones industrial average closed over two per cent up on Monday. Confidence has also been boosted by news of a planned merger between Greek banks Alpha and EFG Eurobank, alongside strong US consumer spending figures. Japan's Nikkei was up more than one per cent overnight.
Federal Reserve chairman Ben Bernanke did not announce more quantitative easing in last week's speech at Jackson Hole, yet markets have bounced.
CMC analyst Michael Hewson said that markets have taken encouragement from Bernanke's announcement that he would, "extend next month's Federal Open Market Committee meeting to two days to fully explore and discuss any range of options for, and against, further stimulus."