The FTSE 100 Index rebounded to see its biggest rise in nearly four years and claw back all the losses seen on “Black Monday” earlier this week.
It was the latest episode of the stock market’s rollercoaster ride over recent days sparked by fears over China.
London’s top-flight share index jumped 3.6 per cent having shed 1.7 per cent in the previous session.
It means the FTSE 100 has now recovered all the losses seen on Monday when it plunged by 4.7 per cent.
The one-day rise was the sharpest in percentage terms since October 2011. The index rose more than 200 points, equivalent to £54bn added to the value of its constituent companies.
It opened higher following a strong performance for New York’s Dow Jones Industrial Average in the previous session on expectations that fears over China would put off an US interest rate hike expected next month.
That was followed by a 5.3 per cent rally for China’s Shanghai Composite overnight, its biggest gain for eight weeks.
The FTSE’s progress accelerated further in the latest session after a sharp upgrade for US growth, with official figures showing it expanded at an annual rate of 3.7 per cent in the second quarter, much higher than an initial 2.3 per cent estimate.
This helped the Dow Jones head higher again. Germany’s Dax and France’s Cac 40 were up by more than three per cent.
Laith Khalaf, senior analyst at Hargreaves Lansdown stockbrokers, said: “It’s been one of the best ever days for the UK stock market, neatly illustrating why it’s a bad idea to sell out in a market rout.
“Black Monday was a truly dreadful day for stock investors, but it’s been followed by big bounce, with the Footsie now back where it ended last week.
“Markets tend to over-react to both good and bad news, so sharp falls are often followed by strong rallies.
“Markets have today been buoyed by a rally in Chinese shares, a rise in commodity prices and a substantial upward revision of economic growth in the US.
“It would be foolhardy to suggest we’re out of the woods yet though, and share prices are likely to remain volatile for some time.”
Markets have endured some of the worst volatility since the financial crisis amid fears over China’s slowing economy, which saw the country slash its interest rates for the fifth time in nine months earlier this week to shore up flagging growth.
Mining stocks, which have suffered heavy losses amid the stock market rout as commodity prices have slumped, were among those leading the rebound in London.
Anglo American and BHP Billiton, the world’s biggest miner, each rose nine per cent.
Asian-focused bank Standard Chartered was another big riser, up seven per cent, with high street lenders HSBC and Barclays also enjoying share gains.
Traders will be looking for further clues on the timing of rate hikes when central bank bosses - including Bank of England governor Mark Carney - gather for the annual economic policy symposium in Jackson Hole, Wyoming.
Michael Hewson, chief market analyst at CMC Markets, said not only had the immediate threat of a US rate rise receded, but some even believe the Fed should launch further economic stimulus efforts, in the form of more quantitative easing (QE).
He said: “Given the events of the past few days the narrative appears to be shifting and while a week ago all the talk was of a possible rate rise and the timing of such a move, we’re now starting to hear calls for further easing in the form of QE4.”
Federal Reserve official William Dudley said on Wednesday that an interest rate hike next month seemed less appropriate given the threat posed to the US economy by recent market upheavals.