UK's largest firms enjoy increase in value of more than £30bn
More than £30 billion has been added to the value of the UK's biggest companies amid reports that Italy may take a controlling stake in troubled banking giant Monte dei Paschi di Siena.
The FTSE 100 Index closed up 1.8% to 6,902.23, as British banking shares soared following speculation that Italy would buy up a two billion euro (£1.7 billion) slice of the world's oldest lender.
Possible government intervention comes after private investors became cautious about ploughing funds into Monte dei Paschi during a period of acute political uncertainty.
Prime minister Matteo Renzi was schedule to resign at 7pm on Wednesday after a bruising defeat for the Italian government in the country's referendum on constitutional reforms.
Monte dei Paschi has been looking to haul in five billion euro (£4.2 billion) from private investors to shore up its battered balance sheet and prevent a collapse which would deal a hefty blow to the European banking sector.
Shares in Lloyds Banking Group were up more than 4%, while Standard Chartered rose 4% and HSBC climbed around 3%.
The top flight was also enjoying a boost from sterling's latest slump and a strong rally from London-listed mining stocks.
The Brexit-hit pound has been a boon for multinational firms on the FTSE 100, as many tend to benefit from earnings in currencies that are stronger than the pound.
Rio Tinto was the biggest riser on the London market, climbing 6% following an upgrade from Credit Suisse to outperform from neutral, while Anglo American jumped 4% on recovering iron ore prices.
Across Europe, Germany's Dax was 1.9% ahead and the Cac 4 in France pushed 1.2% higher.
On the currency markets, the pound sank further against the greenback after UK manufacturing and industrial production recorded surprise falls.
Figures from the Office for National Statistics (ONS) showed manufacturing output fell 0.9% in October, down from a 0.6% rise in September, with economists eyeing 0.2% growth.
Industrial production also plunged below expectations, recording its largest monthly drop in four years, declining 1.3% in October.
It caused the pound to sag 0.6% against the US dollar to 1.260, while sterling was also 0.9% lower versus the euro at 1.172.
The UK currency had initially slipped after Prime Minister Theresa May said she would commit to publishing a plan for Brexit before triggering Article 50 in March next year.