The FT-SE 100 Index bounced 25.9 points higher to finish at 3,337.1, capping a strong performance during the week, which left the index 75.8 points higher than last Friday's close.
Share prices traditionally rise in the week leading up to Christmas and next week may be no exception. Market-makers are short of stock and rate-cut expectations may fuel demand from small investors.
But some warn that investors may take profits, and market-makers are anxious to obtain stock at lower prices, although they may have little choice.
The market was also relieved by reports that policymakers at the Federal Reserve, the US central bank, see no need to raise interest rates because they believe that inflationary pressures remain low despite accelerating expansion.
In another indication of a strong fourth quarter in the US, housing starts jumped by 3.9 per cent in November, taking the number of dwellings started to its highest level since February 1990.
Housing starts are a key indicator of US economic activity and have risen for four months in a row, underscoring how low mortgage rates are stimulating a housing recovery. The size of last month's increase took analysts by surprise. Building permits, meanwhile, climbed by 4.8 per cent, which points to demand spilling over into 1994.
The rise in both starts and permits suggests the housing sector will provide a stimulus to the economy well beyond the first quarter. Although a relatively small component of the economy, the housing sector is noted for its potential to affect a wide swathe of activity.
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