The FTSE 100 closed up 174.4 points at 5,251.90, shrugging off news that the influential Confederation of British Industry (CBI) is to cut its 1999 UK growth forecast, currently 1.2 per cent.
All major European bourses recorded sizeable gains, while in New York shares opened markedly higher. At lunch-time, the Dow Jones Industrial Average was trading up 144.7 points at 8611.15.
A host of US corporates announced third quarter earnings yesterday - nicknamed "Super Tuesday" by analysts because of the number of companies reporting. Earnings were generally stronger-than-expected, providing a fillip to shares around the world.
Abbey Cohen, chief strategist at Goldman Sachs and a notorious bull, also gave the market a helping hand when she predicted the Dow could hit 10,000 within the next 12 months. News that the US trade deficit reached record levels in August did little to dampen investor sentiment.
Elsewhere, reports that Germany's Deutsche Bank had held exploratory talks with Bankers Trust, the US investment bank, sparked renewed merger speculation in the sector and gave a boost to bank stocks across Europe and the US.
The positive sentiment on the UK equity market trickled over into the foreign exchange market, where the pound closed up more than 3 pfennigs against the German mark at DM2.799, having at one point broken through the DM2.80 barrier.
Stronger than expected money supply figures partly explained sterling's rise, according to analysts, who added that yesterday's appreciation in the dollar - up more than 3.5 per cent against the yen - also gave the pound a boost.
M4 - a broad measure of money supply - rose by 0.9 per cent in September, while the British Banking Association said lending rose by pounds 2.1bn last month.
The data suggests that UK lending is still growing strongly, although analysts said October's Monetary Policy Committee minutes - due for publication today - and Friday's GDP figures, would have a greater impact on November's interest rate decision.
Meanwhile, the CBI warned that the UK could slip into recession if central banks refused to cut interest rates again.