The FTSE 100 powered ahead to its highest level for nearly a year as Bank of England boss Mark Carney signalled interest rates could be slashed in the summer.
But the prospect of rates being cut from their historic low of 0.5% sent the pound tumbling once more, close to the 31-year low against the dollar seen in the aftermath of the Brexit vote.
The FTSE 100 Index closed up 2.3% or 144.3 points to 6504.3 - its highest level since last August - in a third day of big gains as financial markets bounced back from the Brexit rout.
Mr Carney's comments accelerated the rally as he also hinted that the Bank could pump more cash into the economy, possibly reviving quantitative easing.
Tony Cross, from Trustnet Direct, said: "As if the market couldn't get any stranger, the FTSE 100 has pushed to above 6,500 for the first time since before the Chinese equity market shock last August."
He added the twists and turns in the Conservative Party leadership contest was adding to the pound's woes.
"This has added to the unsettling of the pound, and while this is good for stocks in the short-term, the concern is these exit negotiations need to be carefully managed," he explained.
The pound fell just over a cent to 1.33 US dollars and a cent to 1.20 euros.
Mr Carney said Britain was grappling with "economic post-traumatic stress disorder" following the vote to leave the EU. However, he added any decisions would not be his to take alone and the call would be made by the Monetary Policy Committee (MPC).
"In my view, and I am not pre-judging the views of the other independent MPC members, the outlook has deteriorated and some monetary policy easing will likely be required," he said.
The comments dash previous forecasts by the Bank before the EU referendum that interest rates would soon rise.