The FTSE 100 has risen to a 17-month high as it flirted with the psychologically important 6,000 level lifted by encouraging data from China and renewed hopes of fiscal cliff deal.
The index of leading UK shares was up 37 points - or 0.6pc - at 5991.78 at 12.30pm, with miners dominating the leader board.
It later eased back, up 24.5 points at 5978 at 2.40pm. On Wall Street, the Dow Jones Industrial Average ticked up 23 points to 13136 in early trading.
Mining companies on the FTSE 100 (FTSE: ^FTSE - news) were boosted by data from China showing a recovery in profits at industrial firms, a sign that the country's economy is gaining momentum. ENRC, up 4pc, was the leading riser - one of seven mining groups in the top ten best performing companies in the index on Thursday.
"Its starting to look like a traditional cyclical rally. It's very thin volumes, but if you're looking for a correlation with events in China, then the miners are an obvious way to play that," Alan Higgins, Chief Investment Officer at wealth management firm Coutts, said.
Materials, financials and energy, the three leading cyclical sectors, combined to add more than 18 points to the index. Utilities, healthcare and consumer staples, considered "defensive" plays, were the only sectoral fallers.
Signs that the US budget impasse may be resolved before an end-of-year deadline supported the gains. US House Speaker John Boehner has offered to consider any bill the Senate produces and Barack Obama has returned early from his Christmas break in Hawaii to restart talks today.
Economists warn that the "fiscal cliff" of higher taxes and spending cuts worth $600bn could push the world's largest economy into recession, dragging other countries with it.
"There is still hope for a last-minute deal, otherwise we're in for a correction in January. People have already priced in an agreement. Without it, the market can't stay at these levels," a Paris-based trader said.
However, gains in equities are likely to be limited until there is more concrete progress in Washington.
Mike Mason, a senior trader at Sucden Financial Private Clients, said: "Until there is a resolution, the final sessions of 2012 are unlikely to really take off."
Investors in UK stocks will also watch for a batch of US data later in the day, including weekly US initial jobless claims, December consumer confidence and November (Xetra: A0Z24E - news) new home sales numbers.
Labour department figures showed that applications for US jobless benefits fell 12,000 to 350,000 last week.
Against the yen, the dollar at 85.87 yen reached its highest since September 2010, with investors accelerating their yen sales after new Japanese Prime Minister Shinzo Abe said his government would pursue a bold monetary policy, a flexible fiscal policy and a growth strategy to encourage private investment.
The euro, which is being supported by a better outlook towards the euro zone, climbed 0.4 per cent to $1.3266.
Asian shares rose, with Tokyo scaling a 21-month high due to the weaker yen but it was held back by concerns about a US "fiscal cliff" deal.
Tokyo's benchmark Nikkei 225 index climbed 0.91pc, or 92.62 points, to 10,322.98, the highest level since March 11 last year when a massive quake struck Japan, sparking a tsunami and the worst atomic crisis in a generation.
Seoul closed 0.26pc higher at 1,987.35 and Sydney gained 0.28pc to 4,648.0. Hong Kong was up 0.36 per cent in afternoon trade while Shanghai eased 0.6pc.
US stocks fell overnight on continued uncertainty about whether a deal to avert the fiscal cliff a series of steep tax hikes and spending cuts worth some $600 billion due to take effect in January could be reached by the end of the month.
The Dow Jones Industrial Average finished down 0.19pc at 13,114.59. The broader S&P 500 lost 0.5pc and the tech-rich Nasdaq Composite shed 0.74pc.
The Treasury Department said on Wednesday that the government would hit its legal borrowing limit by Monday, setting in motion emergency measures to keep the government operating for several more weeks.
The Treasury's manoeuvring is designed to put off until February or March the prospect of a full-blown debt crisis, indicating that the US budget wrangling could continue well into 2013.