Relief over America's deal to avert a budget crisis has sent London's FTSE 100 Index smashing through the 6000 barrier for the first time since July 2011.
The top tier rallied 1.8% higher - up 109.3 points to 6007.1 - after politicians passed short-term measures to prevent the United States careering over the so-called fiscal cliff.
Markets across Europe also powered ahead, with Germany's Dax up 2% and the Cac 40 in France rising by more than 1.4%.
The fiscal cliff agreement, which was sealed just hours before world markets were due to return from the New Year holiday, has staved off a devastating package of spending cuts and tax rises.
Economists feared that without action by Congress, the tax increases and spending cuts that technically took effect on New Year's Day would cause unemployment to surge and send the US economy back into recession.
UK blue chips were also boosted by economic cheer after a closely-watched survey revealed a return to growth in Britain's manufacturing sector and the highest reading for 15 months.
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