On 2010's first day of trading, the FTSE 100 climbed 1.6% to close at 5,500, a 16-month high.
Banks and commodity stocks drove the market: the day's top performer was RBS, up 9.9%, while Lloyds rose 3.1%, Barclays added 1.7% and HSBC was 2.5% higher.
Cairn Energy topped the commodity stocks with a rise of 6.7%. Miners ENRC and Vedanta climbed 4.9% and 4.8% respectively, with the rest of the sector making good gains.
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Property stocks performed poorly, with Hammerson the day's biggest faller, down 2.8%. British Land and Land Securities lost 2.75% and 1.75% respectively.
In Europe, the Paris CAC 40 rose 77 points to 4,014; and the German Xetra Dax was 91 points higher at 6,048.
The new year optimism continued in the US. The Dow Jones climbed 1.5% to 10,583 - a 15-month high; the S&P 500 was up 1.6% at 1,133 - its highest since October 2008; and the Nasdaq Composite rose 1.7% to 2,308.42.
Overnight in Asia, Japan's Nikkei 225 rose 0.3% to 10,681, while the broader Topix index added 0.4% to close at 919. In China, the Shanghai Composite index rose 1.2% to 3,282; and the CSI 300 closed up 0.8% at 3,564.
Brent spot was trading at $80.20 early today, and in New York, crude oil was at $81.74. Spot gold was trading at $1,126 an ounce, silver was at $17.63 and platinum was at $1,523
In the forex markets this morning, sterling was trading against the US dollar at 1.6057 and against the euro at 1.1128. The dollar was trading at 0.6931 against the euro and 92.85 against the Japanese yen.
And today, retail bellwether John Lewis reported record-breaking sales over the Christmas period. Like-for-like sales in the five weeks to 2 January rose 12.7%, with a two-year rise of 10.4%. Waitrose, the company's grocery chain, saw sales rise 20.8% in the week to 26 December compared with the same week last year. John Lewis managing director, Andy Street, said: "We have seen excellent sales during Christmas," adding: "As the year progresses we expect to see a long slow recovery."
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