FTSE closes up 1.2 percent

"That's the big news this week and as a consequence I wouldn't expect the market to make a great deal of headway in the short term," he said.

Oil majors edged up as crude prices rose above $78 a barrel. BG Group , BP and Royal Dutch Shell added 0.3 to 1.9 percent.

BANKS MIXED

Royal Bank of Scotland fell 7.8 percent after the part-nationalised lender said talks with the European Commission over its state aid will include some divestments not initially contemplated.

Lloyds Banking Group , also part-owned by the government, was off 2.3 percent as investors awaited developments with regards to a planned capital raising.

Across the Atlantic, the Federal Reserve said U.S. banks face risks from souring loans, particularly from commercial property, and some banks may face capital adequacy problems.

Gains in Barclays and heavyweight HSBC , up 2.5 and 2.4 percent respectively, provided some strength to the UK banking sector.

Some nerves ahead of quarterly earnings reports put pressure on selected blue chips. British Airways fell 1.1 percent before its results on Friday, when analysts expect the airline to report widening second-quarter losses.

The carrier also came under pressure after falls in European budget airline Ryanair , made no upward revision to its full-year profit forecasts.

Hammerson , which reports on Tuesday, dipped 3.5 percent, while Liberty International and Segro , which also report results this week, shed 2.8 and 3.1 percent respectively.