The FTSE 100 Index has surged by more than 4 per cent to close 196.2 points higher at 4639.5.

The London market posted its sixth session of gains in a row as investors banked on an aggressive cut in interest rates on Thursday.

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

Banking stocks and retailers were higher as calls grew for a full percentage point cut in rates.

Mining and oil stocks also underpinned the FTSE's gains as the dollar lost ground against the euro, encouraging traders back into commodities.

High street giant 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 fell by a third amid the toughest 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 238.5p.

B&Q owner Kingfisher was another retailer gaining ground, up 7.5p to 129.5p, while Next added 30p to 1125p ahead of its own trading update on Wednesday.

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 12.25p better at 210p.

Royal Bank of Scotland bucked the trend of wider market gains, eventually finishing unchanged at 65.2p, 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 £5 billion preference share stake soon.

The leading FTSE faller however was transport group Stagecoach, which fell 11p to 184.2p, a drop of nearly 6 per cent, as oil prices ticked higher.

It was closely followed by Associated British Foods, down 9.5p at 698p despite a 3 per cent rise in pre-tax profits for the Primark owner.

Winners: Kazakhmys up 59.5p at 397.25p, Wood Group ahead 41.75p at 282p, London Stock Exchange up 95p at 656p and Eurasian Natural Resources ahead 58.75p at 408p.

Losers: Stagecoach down 11p at 184.2p, Associated British Foods off 9.5p at 698p, Cadbury down 4p at 573p and Sage off 1.1p at 177.8p.

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