The internationally focused FTSE 100 closed up 3.1%, still underperforming its European peers as exporters were pressured by a recovering pound. [GBP/]
The currency rebounded from an overnight dip on expectations that British Prime Minister Boris Johnson could shortly be back at work after being admitted to hospital on Sunday night with persistent coronavirus symptoms.
Volatility gauges dipped and stock markets soared across the world after last week's modest selloff as new infections and deaths slowed in Italy and Spain, while hard-hit New York reported on Sunday that deaths had fallen slightly from the day before.
"We're seeing slowing cases in certain sections of Europe and that's bringing a rush of buying into the market," said Keith Temperton, a sales trader at brokerage Tavira Securities.
"However, longer-term impacts of what's happening and what happened are going to put pressure on the markets."
Despite policymakers injecting trillions of dollars into the global economy, the FTSE 100 was down about 27% from its January peak as economic data in the recent weeks suggests a sharp economic slump might be under way.
A survey on Monday showed British consumer confidence recorded its biggest fall in more than 45 years, while new car sales dropped faster than during the 2008-09 financial crisis.
However, the less pessimistic mood on Monday drove investors to buy some of the worst-hit sectors such as travel and leisure <.FTNMX5750>, which has nearly halved in value so far this year as country-wide lockdowns hamper demand.
Cruise operator Carnival Plc, IAG-owned British Airways and easyJet jumped between 14% and 16%.
Aero-engine maker Rolls-Royce surged 18% after it secured an additional revolving credit facility, but said it was scrapping its targets and final dividend.
Insurer Legal & General Group soared 16.7%, recovering sharply from last week's losses after it said it would pay a 2019 dividend even after a European Union regulator said insurers and reinsurers should temporarily halt payouts.
Peers Prudential and Aviva rose 11% and 5.3%, respectively.
Housebuilders such as Persimmon, Taylor Wimpey and Barratt Development, which have suffered in the recent weeks on fading domestic growth perospects, jumped between 12% and 16%.
The domestically focused midcaps surged 5.1%, with Ladbrokes-owner GVC jumping 19% as it halved its estimate for a monthly hit to profits from the coronavirus-driven shutdown in international sports.
Healthcare company Novacyt rose 14% after its COVID-19 diagnostic test won French approval, making it available for immediate distribution in France.
However, Daily Mirror-owner Reach Plc dropped 9.9% after it suspended its dividend and said it would furlough staff, cut wages and management pay to weather the health crisis.
By Devik Jain and Sruthi Shankar