The Bank of Japan unexpectedly cut a benchmark interest rate below zero on Friday, stunning investors with another bold move to revive the world's third largest economy as volatile markets and slowing global growth threaten Japanese efforts to beat deflation.
The blue-chip FTSE 100 index, which had fallen around 1 percent on Thursday, closed 2.6 percent higher at 6,083.79 points.
"The Bank of Japan has managed to temporarily ease some of the macroeconomic tensions that have plagued the start to 2016," said Spreadex analyst Connor Campbell.
Traders said that the Bank of Japan's move would put pressure on the U.S. Federal Reserve to adopt a cautious stance over any future interest rate rises.
It could also prompt the ECB to undertake similar measures in March and reinforce the likelihood that the Bank of England would keep interest rates at a record low.
The index finished January down 2.5 percent for the month, its biggest monthly fall since September.
The FTSE is still around 15 percent below a record high of 7,122.74 points reached last April, after concerns about a slowdown in China and weak oil prices hit world markets at the start of the year.
However, the index closed above the 6,000 level for the first time since Jan. 6, which some analysts said was a bullish sign. Gains were broad-based, with only three stocks in negative territory.
Sainsbury's rose 3.6 percent after a report in the Financial Times that its attempts to buy Argos-owner Home Retail had stalled.
Analysts had said the deal might have been expensive for Sainsbury, and Home Retail lost a quarter of its value before recovering to close 4 percent lower.
Sky rose 3.9 percent after announcing that James Murdoch would return as chairman and saying that operating profit had beaten expectations, after reporting strength in its TV and broadband divisions.
"This represents the strongest customer growth for the UK in a decade and was driven by a strong performance in broadband... The strong broadband number suggests Sky is seeing limited impact from the loss of Champions League to BT," Polo Tang, head of telecom research at UBS, said in a note.
"Longer-term (earnings) could be higher than the market expects."
Rival BT also rose 4 percent, as it completes its takeover of mobile network operator EE on Friday, opening the way to creating a single integrated network offering a combination of telecoms and TV services.
(Editing by Mark Heinrich)
By Sudip Kar-Gupta and Alistair Smout
