Banks pushed the FTSE higher by 0.55% to 5380.35 on news the Basel Committee proposed to water down its capital and liquidity reform package.
Banking stocks accounted for the top three positions, with Barclays taking poll position, up 18.20 points (5.77%) at 333p.
Lloyds gained 3.20 points, (4.85%) to 69p, while Royal Bank of Scotland group was trading at 48p, up 1.60 (3.43%).
The strong showing for the banks came despite business secretary Vince Cable warning today the Government would be carefully scrutinising their bonuses and dividend payments in a bid to ensure spare capital is used to kick-start consumer lending.
Meanwhile, hotel operators were in the doldrums, with InterContinental Hotel Group the biggest blue chip casualty of the morning, down 80 points (2.27%) to £11.19 and Whitbread falling 17 points (1.16%) at £14.49.
Gold mining company Randgold Resources was also down 70 points (1.18%) to £58.65.
In the US, the Dow Jones closed at 10,525.43, after gaining more than 100 points (0.97%) for the third straight day on Monday, after a report on the housing market came in better than anticipated. Shipping giant FedEx Corpp also released a forecast that was more upbeat than predictions it made just six weeks ago.
Pfizer Inc topped the leaders' board at $15.03, up 0.45 points (3.09%) and Bank of America Corp. also did well, up 0.39 points (2.84%) to $14.13.
In Japan, the Nikkei 225 index closed down 6.81 points (0.07%) to 9496.85
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