Investors have returned to the market amid reports Greece was increasingly likely to call off its referendum on the eurozone rescue package.
The FTSE 100 Index rose more than 1%, or 61.5 points, to 5545.6, as it emerged that Greek Prime Minister George Papandreou would do a U-turn on his decision to put the rescue deal to the public vote.
Markets slumped when he announced the referendum earlier this week in a move that meant Greece could jeopardise the entire rescue package and plunge the markets back into chaos.
But they pushed ahead again after Mr Papandreou said he would try to pass the package through the Greek Parliament rather than let the public have their say.
Germany's DAX and the CAC-40 in France were both up nearly 3% and the Dow Jones Industrial Average in the US opened higher after being boosted by the rumours.
Meanwhile, problems within the eurozone are not limited to Greece, with Italian borrowing costs hitting eurozone record highs as Prime Minister Silvio Berlusconi pushed through a new budget plan that did not include plans to change tax rates or reform labour markets.
However, the pressure on the borrowing costs of struggling countries eased when the Mario Draghi, in his first move as ECB boss, lowered interest rates to 1.25% from 1.5%.
He also said Europe is in danger of slipping back into recession, causing the euro to fall on currency markets.
In the US, the Federal Reserve downgraded its growth forecasts for the world's biggest economy and predicted higher unemployment after it failed to deliver another round of emergency measures that the markets had hoped for.