Lender HSBC slid 2.9% to its lowest since 2009 as the coronavirus crisis saw it flag mounting bad debt charges and miss profit expectations, sending the FTSE 100 to its lowest since mid-May, before sentiment turned.
After marking its worst week since mid-June on Friday, the blue-chips index closed up 2.3%.
Data showed British manufacturing output last month grew at its fastest pace in nearly three years, while Germany reported an expansion for the first time since 2018. Earlier in the day, China - one of UK's major trading partners, also reported growth in factory output.
In the United States, a survey showed manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July despite a resurgence in new COVID-19 cases.
"The risk of further restrictions and lockdowns will continue to be a huge cloud of uncertainty for many industries, but after months of disruption, there may be a sense of relief at this data," said Craig Erlam, senior market analyst at OANDA Europe.
Material stocks were the biggest boosts as iron ore prices rose, followed by the healthcare sector. AstraZeneca jumped 2.8%.
The domestically-focussed FTSE 250 rose 1.3%, breaking a three-session losing streak.
A rally in UK stock markets had stalled in July as confidence in a post-pandemic economic recovery was dulled by dour corporate forecasts and fears of a second COVID-19 wave.
All eyes will be on a Bank of England policy meeting later in the week, where it is expected to shed more light on the pace of an expected economic rebound.
In results-driven moves, engineering firm Senior Plc and insurer Hiscox slumped 15.1% and 3.4%, respectively, after swinging to a first-half loss.
(Reporting by Sagarika Jaisinghani in Bengaluru, Editing by Sherry Jacob-Phillips and Tom Brown)
By Sagarika Jaisinghani and Susan Mathew
