The UK benchmark index ended up 54.01 points, or 0.9 percent, at 5,782.56, its highest close since July 29.

Banks rose, with investors cautiously optimistic about the outcome of a meeting of euro zone finance ministers in Brussels to discuss Greek debt restructuring.

The mood brightened when French Finance Minister Francois Baroin said to journalists in Paris that a deal with private sector investors about resolving Greece's debt crisis was taking shape.

It's a reminder that, actually, the European sovereign debt crisis isn't insurmountable, Henk Potts, market strategist at Barclays Wealth, said.

If European politicians were able to solve Greece then that would be a significant step in the right direction. It wouldn't be the total solution but at least it would show that they were travelling on the right road.

Also aiding banking stocks, said traders, were newspaper reports that France and Germany will call for a relaxation of Basel III global bank capital rules to prevent lending to the real economy being choked off.

But Michel Barnier, European Commissioner in charge of financial regulation, said on Monday that he would stick strictly to the implementation of Basel III.

Signs that a Greek deal may be around the corner had a positive knock-on effect on other cyclical sectors, spearheaded by integrated oil stocks, as oil prices rose on an EU ban of Iranian crude imports.

Royal Dutch Shell was =best off, up 2.5 percent, after ING started coverage on the oil major with a buy rating, on valuation grounds, and said its safe yield of 4.7 percent should support the shares.

Traders also cited an improving overall macroeconomic outlook as supportive of commodity stocks, with recent better-than-expected data out of the United States boosting hopes for a strong reading in its fourth-quarter GDP, due on Friday.

Preliminary data for the fourth quarter is expected to show the U.S. economy grew 3 percent, against 1.8 percent in the previous quarter.

You've got to factor in that the FTSE's very commodities based, so any perception that there's going to be an economic recovery is going to help risk appetite, Michael Hewson, market analyst at CMC Markets, said.

Reflecting this more upbeat view, UBS has upgraded global equities to overweight from neutral, arguing risks to economic growth and the stability of the financial system have abated, although it remains cautious on Europe and Japan.

The bank warned that growth is likely to remain tepid, and there remain challenges for equities, but recommended using any pullback in share prices as an opportunity to add risk.

We believe investors should begin to adopt less defensive and incrementally more cyclical positions, UBS said in a note.

As double-dip and financial risks fade, risk premiums should fall to reflect a more stable backdrop, allowing higher PE (price-to-earnings) multiples, even as earnings growth slows.

Essar Energy recovered some of its poise after last week's hefty falls, jumping 10.7 percent to top the FTSE 100 leaderboard, as the India-focused refiner and power generator announced an increase in the resource estimate at its Raniganj coal bed methane exploration block in West Bengal.

Trading volume in Essar was three and a half times its 90-day daily average.