Sentiment was also helped after Morgan Stanley said the worst of the bear market was over, encouraging clients to get back into shares.

With a three per cent gain for Wall Street's Dow Jones Industrial Average adding to the mix, the FTSE 100 Index posted its sixth session of gains in a row, eventually closing 196.22 points higher at 4639.50.

Banking stocks and retailers were higher as calls grew for a full percentage point cut in rates tomorrow. Mining and oil stocks also underpinned the Footsie's gains as the dollar lost ground against the euro, encouraging traders back into commodities.

Marks & Spencer made eye-catching gains as investors showed their relief at a lower-than-feared drop in the retail giant's first-half profits and a pledge to protect the dividend.

M&S's interim profits declined by a third amid the toughest trading conditions since the early 1990s, but the 34 per cent profits plunge came in just ahead of City estimates, leaving shares 17p better off at 2381/2p.

B&Q owner Kingfisher was another retailer gaining ground, up 71/2p to 1291/2p, while Next added 30p to 1125p ahead of its own trading update today.

Among the banks, Halifax Bank of Scotland enjoyed another winning session after write-downs in line with market hopes on Monday. Shares added 10.6p to 116p, while merger partner Lloyds TSB was 121/4p better off at 210p.

Banking giant Royal Bank of Scotland bucked the trend of wider market gains, eventually finishing unchanged at 651/4p as it gave a downbeat outlook on trading with more writedowns and caution over full-year figures, which could show a first ever loss.

The group's new chief executive hopes to resume dividends in early 2010 with aims to buy back the Government's £5bn preference share stake soon.

The leading Footsie faller was transport group Stagecoach, which fell 11p to 1841/4p, a drop of nearly six per cent, as oil prices ticked higher.

It was closely followed by Associated British Foods, down 91/2p at 698p despite a three per cent rise in pre-tax profits for the Primark owner.

In the FTSE 250 Punch Taverns endured similar woes after writing off almost £300m on its pubs during a difficult year. Shares shed almost eight per cent or 131/2p to 170p.

Hovis-to-Branston Pickle firm Premier Foods benefited from the encouraging M&S figures as shares recovered from recent weakness to rise 41/4p to 323/4p.

The interest rate hopes meant Taylor Wimpey shares jumped 21/4p to 16p and Barratt Developments added 13/4p to 873/4p.

The biggest Footsie risers were Kazakhmys up 591/2p at 3971/4p, Wood Group ahead 413/4p at 282p, London Stock Exchange up 95p at 656p and Eurasian Natural Resources ahead by 583/4p to end the day at 408p.

The biggest fallers were Stagecoach down 11p at 184.2p, Associated British Foods off 91/2p to 698p, Cadbury was down by 4p at 573p and Sage declined by 1.1p to stand at 177.8p.