Investors have dived into the markets after six central banks including the Bank of England announced a co-ordinated bid to boost lending to households and businesses.
The FTSE 100 Index was nearly 3% higher after the banks, including the European Central Bank (ECB) and US Federal Reserve, agreed to lower interest rates on US dollar loans, which should encourage lending between banks and help stave off economic stagnation.
The move comes amid fears of a looming second credit crunch as the unresolved eurozone debt crisis continues to pile pressure on the banking sector.
Shares in Britain's biggest banks were boosted by the announcement, with Lloyds Banking Group up 8%, Barclays ahead 7% and Royal Bank of Scotland rising 5%.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "The world's central banks have shown the European area the meaning of decisive and coordinated action."