Banks helped the FTSE add 1% in morning trading Tuesday as the index climbed above 6,000 once again.
London's leading index added more than 61 points, or 1%, to reach 6,017.
The positive sentiment was sparked by a Société Générale report on the European banking sector, saying the recent crisis, combined with regulatory changes, represented a "golden opportunity", writes the FT.
Analysts Gert van Rooyen and Philip Richards named Barclays and Lloyds Banking Group among SocGen's favourite picks in the sector.
Barclays added 4.9% to 290p while Lloyds rose 2.9% to 67.1p.
Meanwhile, HSBC rose 2.6% to 690p after analysts at Citigroup lifted their rating on the stock to "buy" from "hold".
British tech giant ARM Holdings gained 6% after announcing two new tie-ups yesterday.
Earlier, Marks and Spencer was lower despite seeing group sales rise 4% in the final quarter of 2010, while Capital Shopping Centres lost almost 5% after US shopping mall giant Simon Property dropped its indicative bid for the company. It has since rebounded to 389p, just 0.76% lower.
Overnight in the US, the Dow Jones lost 37 points, or 0.32%, to fall to 11,637.
Additional reporting by Sharecast.
£300bn of liabilities
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Appointed by FCA and PSR boards