Strength in commodity stocks and banks drove Britain's leading share index to a 16-month closing high yesterday, the first session of 2010, outweighing falls from real estate firms and life insurers.
The FTSE 100 closed up 87.46 points, or 1.6 per cent, at 5,500.34, its highest close since September 2, 2008 - the month when Lehman Brothers collapsed.
The index gained 15.02 points, or 0.3 per cent, to end at 5,412.88 on December 31, registering a 22 per cent rise for 2009 for its biggest gain since 1997.
"There were pretty good economic figures in terms of manufacturing in China and, indeed, the (United) States. We had a spike in the gold price and general strength in metals which has pushed mining stocks up and the oil price has pushed up oil stocks," said Richard Hunter, head of UK equities at Hargreaves Lansdown.
"I suspect there might also be some buying pressure as investors look to construct their portfolios for the year ahead," he said.
Miners were among the top gainers, with Vedanta Resources, Xstrata, Eurasian Natural Resources, Kazakhmys and Lonmin climbing 3.7-4.9 per cent.
BofA Merrill Lynch also issued a bullish note on European miners, forecasting 4.4 per cent global growth in 2010.
US stocks advanced yesterday after data showed a fifth straight month of expansion in the manufacturing sector, while Asian stocks rose overnight after data showed manufacturing activity in China growing at its fastest pace on record.
Energy stocks posted solid gains as crude prices rose above $81 on news Russia has halted oil supplies to Belarus, and on cold weather in the United States.
BG Group, BP and Royal Dutch Shell added 2.3-3.5 per cent.
Cairn Energy was among the top FTSE 100 risers, up 6.7 per cent, as the company secured a second drilling rig for its exploration programme offshore western Greenland, prompting BofA Merrill Lynch to raise its net asset value for the firm by 27 pence to 385 pence.
Banks were in demand, with Royal Bank of Scotland topping the blue-chip leader board, up 9.9 per cent. Lloyds Banking Group , Barclays, HSBC and Standard Chartered put on 1.7-3.1 per cent.
Brazilian lender Itau Unibanco is considering buying stakes in one of the two British banks - Lloyds and RBS - rescued by the British government during the credit crisis, the Sunday Times reported.
RBS was also supported by an Exane BNP Paribas upgrade to "outperform" from "neutral".
Among individual gainers, security equipment firm Smiths Group was up 5.4 per cent as airports operator BAA said it will introduce body scanners at London Heathrow as soon as practicable.
Argos owner Home Retail Group added 4.6 per cent, helped by an SG Securities upgrade to 'buy' from 'hold', and DIY retailer Kingfisher gained 3.2 per cent.
On the downside, real estate firms and life insurers, which outperformed in the end-2009 rally, fell back.
Hammerson was the biggest blue chip faller, off 2.8 per cent, while British Land, Land Securities and Liberty International shed 0.6-2.8 per cent.
Among insurers, Standard Life, Legal & General, RSA Insurance and Aviva lost 0.8-2.2 per cent.
In British economics news, a sharp rise in manufacturing activity, mortgage approvals and a key measure of money supply boosted hopes Britain's economy was gaining traction after an 18-month recession.