The benchmark share index closed at its highest level in nearly two weeks on Wednesday, as hopes of fresh central bank stimulus measures lifted equity markets, although traders said the overall weak economic outlook would limit any future gains.
The blue-chip FTSE 100 ended up 56.68 points, or 1 percent, at 5,685.77 points - its best closing level since finishing at 5,692.63 points on July 5, and recovering from two consecutive days of slight losses.
Expectations that central banks such as the U.S. Federal Reserve or Bank of England might inject fresh liquidity - via a process known as "quantitative easing" (QE) - to fight the weak global economy, lifted the FTSE and other global equity markets.
Minutes from a July 4-5 meeting of the Bank showed that its policymakers had discussed a possible interest rate cut and larger asset purchases.
However, many traders remained cautious, with worries over the weak economy highlighted by data showing a bigger-than-forecast rise in the UK jobless claimant count in June.
The FTSE rally was mainly driven by gains in heavyweight defensive stocks, such as British American Tobacco and supermarket group Tesco , often favoured in times of economic uncertainty for their stable profits and high dividends - again indicating a lack of conviction in the broader rally.
"I just think the market is getting a little bit ahead of itself in terms of QE. In that regard, the riskier assets may prove to be disappointing and the defensives will remain on the front foot," said Central Markets chief strategist Richard Perry.
FTSE SEEN STUCK IN TIGHT RANGE IN SHORT-TERM
The market rally helped investment manager Hargreaves Lansdown to top the FTSE 100 leaderboard, with its shares rising 4.2 percent.
British financial stocks have fallen sharply in recent weeks on the back of a Libor (London Interbank Offered Rate) interest rate rigging scandal which has hit Barclays and other UK banks.
However, EGR Broking managing director Steven Mayne said he had used recent falls on the FTSE to buy such stocks, as well as hedge fund Man Group and mining companies, on the cheap.
"I like the gold miners and I don't mind Man Group," said Mayne.
Yet HSBC underperformed the broader market rally, with its shares slipping 0.3 percent after it received stinging criticism from a U.S. Senate panel over how it polices illicit funds.
Traders said they would continue to take small, short-term positions on the FTSE over the next month, as they wait for clearer signals on signs of new monetary intervention to fight off the weak global economy and festering euro zone debt crisis.
"We'll stay within this tight 50-60 point range. We'll be buying around the 5,610 or 5,620 point mark and look to sell at 5,670," said Central Markets' Perry.
(Reporting by Sudip Kar-Gupta; editing by Ron Askew)