London's premier index performed a dramatic rebound as the markets priced in a 78% chance of interest rates being cut next week.
The FTSE 100 index was 70.2 points higher at 6553.8 amid mounting speculation that the Bank of England is on course to slash the cost of borrowing from 0.5% where it has remained since March 2009.
Economists at Hargreaves Lansdown said it was "now probable" rates will be cut on Thursday, with financial markets pricing in a reduction from 0.5% to 0.25%.
They said it was possible rates may also be lowered to zero in August as the Bank struggles to bolster flagging growth and contain the fallout of Britain's vote to leave the EU.
Dovish comments from the US Federal Reserve also helped the London market recover from hefty falls in Wednesday's session.
The US central bank's policy meeting on Wednesday appeared to kick a potential interest rate hike into the long grass until it gets a better grip on the impact of Britain's vote to leave the European Union.
It helped to ease Brexit concerns on London's top flight index, with banking and house building stocks stepping up after punishing falls in previous sessions.
Royal Bank of Scotland was among the biggest risers, up 6.5% or 9.7p to 158.6p, while Lloyds Banking Group climbed 2.2p to 49.7p.
Charles Church builder Persimmon was 48p higher at 1337p and Taylor Wimpey notched up 6.2p to 122.1p.
Sterling was also showing signs of recovery, pulling back from a 31-year low but remaining slightly down against the dollar at 1.292.
The pound rose 0.2% against the euro to 1.168, as it the UK's manufacturing industry beat expectations in May despite activity easing back from a surge in the previous month.
The Office for National Statistics said manufacturing output came in at a better-than-expected fall of 0.5%, dropping down from April's rise of 2.4%, but remaining ahead of a predicted slide of 1.1%.
Meanwhile, the oil price nosedived 2.9% or one dollar and forty cents to 47.40 US dollars a barrel.
The cost of Brent crude tumbled after the Energy Information Administration (EIA) said that stockpiles had fallen by 2.2 million barrels for the week ending July 1.
In stocks, Marks and Spencer bounced back from large falls at the beginning of the session when investors baulked at a further slide in clothing sales.
The high street bellwether saw its beleaguered clothing arm record its worst sales performance in a decade after a "weak market" triggered an 8.9% plunge in first quarter like-for-like sales in its clothing and home division.
However, shares were up 4.8p to 298.9p after the retailer was handed a broker upgrade from Credit Suisse to neutral from underperform.
Primark-owner Associated British Foods was the biggest riser on the top flight after sales at the clothing chain rose 7% in the 40 weeks to June 18, although they were hit by "unpredictable weather patterns" in April.
However, the company warned that UK profit margins at the retailer would be hit by the falling pound, but the strengthening euro would lead to stronger overseas profits at its sugar business.
Shares were 8% or 227p higher at 2780p.
Away from the top tier, Sports Direct was ahead on the FTSE 250 index as investors reacted with relief to its better-than-expected performance.
The firm was up 0.2p to 279.1p as core earnings at the retailer fell 0.5% to £381.4 million.
The biggest risers on the FTSE 100 Index were Associated British Foods up 227p to 2780p, Provident Financial up 179p to 2409p, Royal Bank of Scotland up 9.7p to 158.6p, Dixons Carphone up 16.4p to 298p.
The biggest fallers were Fresnillo down 92p to 1916p, Randgold Resources down 435p to 9280p, United Utilities down 13p to 1019p, National Grid down 12.5p to 1103p.