Britain's top share index inched up 0.2 per cent yesterday, with banks offsetting losses in Vodafone and oil producers, though volumes were light on the last full trading day before Christmas.
The FTSE 100 closed 6.82 points higher at 4,255.98, after rising as high as 4,307.09. The UK benchmark has fallen 34 per cent this year on concerns of a deep and painful global recession, triggered by a meltdown in risky US subprime mortgages.
Activity was light, with just over 578 million shares changing hands. That compared with Monday's 767 million and last week's daily average of 1.12 billion.
"Who knows what the new year holds, but I think there is a bit of confidence coming back to the market," said Mark Foulds, a senior trader at ETX Capital.
The UK market will end trading today at 1230 GMT and will remain close until December 29.
Banks were the top-weighted gainers, with HSBC, Standard Chartered, Barclays, Lloyds TSB and Royal Bank of Scotland up between 0.2 and 4.6 per cent.
Britain edged closer to recession in the third quarter, with the economy contracting by more than previously thought and at its sharpest rate since the early 1990s.
The number of mortgages approved for home purchase in Britain slumped to a fresh record low last month, with the seasonally-adjusted number falling to 17,773 - almost 61 per cent down on the same time last year.
Deutsche Bank said in a note that it forecast UK house prices falling by a total of 35 per cent from peak to trough, which it expected at the end of 2010.
Across the Atlantic, the US economy shrank at a 0.5 per cent annual pace in the third quarter as expected.
BAE Systems advanced 3.7 per cent after Goldman Sachs reiterated its "buy" rating in a review of the European aerospace and defence sector.
Rolls-Royce put on 1.8 per cent after it announced a $575 million deal with Etihad Airways to supply and maintain Trent 770EP engines for eight Airbus A330 aircraft.
Killik & Co said in a note that drugmakers and tobacco firms, were among its top picks, highlighting AstraZeneca, GlaxoSmithKline and Imperial Tobacco.
"Rather than embracing the rallies next year, investors are likely to treat any short-term stock market recovery with scepticism, fearing it is only a temporary respite from the long-term bear market," said Mick Gilligan, head of research at Killick.