FTSE Higher As Nikkei Suffers 5% Plunge

European stock markets have rallied a day after a rout which saw the FTSE 100 (NasdaqGS: Z - news) hit lows not seen since July 2012.

London's leading share index was up 2%, or more than 100 points, by lunchtime on Friday, while Germany's Dax and France's Cac 40 also saw gains of about 2%. Wall Street opened higher too.

The UK market was led higher by Rolls-Royce. Despite the engine maker announcing a cut to its dividend , it saw its share price jump 18%.

Wider sentiment was lifted by an improvement in the oil price, with a barrel of Brent crude reaching nearly $32 during the session. BP climbed 4% and Royal Dutch Shell was up by about 3%

Banks were also doing better after a tough period which has seen their values plummet.

In Germany, shares in Deutsche Bank (Other OTC: DBAGF - news) rocketed by 10% after it announced a programme to buy back about £3.7bn-worth of its own bonds - parcels of debt that have been at the centre of market worries over the lender in recent days.

There was further cheer as US retail sales posted modest gains for January, showing that Americans kept shopping despite global financial turbulence which it has been feared could feed into the world's biggest economy.

In London, the index of the UK's 100 largest listed companies has shed around a tenth of its value so far this year, equivalent to a financial loss of more than £160bn.

Global markets have seen renewed turmoil this week amid heightened concerns over the state of the world economy - with US Federal Reserve chair Janet Yellen on Wednesday admitting evidence of greater risks, despite the Fed raising US interest rates in December citing a rosy outlook.

Only a handful of FTSE 100 stocks are ahead this year.

It comes as central banks - including the European Central Bank and the Bank of Japan - have been cutting rates to try to stoke economic activity.

Markets are jittery about the gloomy outlook that has prompted this action and fearful that, with many countries already having zero or negative rates, they have few tools left in their armoury to respond to another downturn.

Many also argue that negative interest rates hurt banks' profitability.

Markets are also mindful of the impact of oil. Although the Bank of England says that lower prices are good for the UK economy as a whole, the firms that fund pensions are often heavily exposed to the value of 'black gold' which has fallen more than 40% over the last year.