The U.S. Federal Reserve raised interest rates by 0.25 percent in a well-telegraphed move. The central bank also signalled that the pace of policy tightening would be gradual.
Banking stocks rose as banks typically make more money in a higher interest rate environment.
Healthcare stocks including AstraZeneca (>> AstraZeneca plc) and Shire (>> Shire PLC) rose after Astra's decision to buy 55 percent of Acerta Pharma highlighted the extent of takeover activity within the industry, which has boosted health stocks this year.
Stocks with exposure to emerging markets were among the best performing stocks on the globally-exposed FTSE 100 as the move by the Fed was well received across the world.
"The Fed’s decision came as no real surprise to anyone and there was a palpable sense of relief that the move has finally been made," said AJ Bell Investment Director Russ Mould.
Standard Chartered (>> Standard Chartered PLC) led the market higher, up nearly 8 percent, though the EM-exposed lender remained down 40 percent for the year.
People familiar with the matter said that top investor Temasek was willing to give Standard Chartered time to work on its turnaround before deciding on the fate of its underperforming $4 billion (£2.6 billion) stake in the UK bank as part of a portfolio reshuffle.
South Africa-exposed stocks continued to rally, with Old Mutual (>> Old Mutual plc), Investec (>> Investec plc) and Mondi (>> Mondi Plc) all up 6-14 percent so far this week after the appointment of a new finance minister lifted the rand from a record low.
The blue-chip FTSE 100 index <.FTSE> rose 1.2 percent to 6,133.33 points, but is down by around 6 percent since the start of 2015, having fallen back from a record high of 7,122 points set in April.
The index lagged gains of more than 2 percent in Germany <.GDAXI> and France <.FCHI>, with some commodity stocks, which account for a large share of the British index, underperforming.
"We're moving up on the back of the U.S. interest rate rise, but the FTSE still has some weakness in it because the miners are still coming under pressure," said Beaufort Securities' sales trader Basil Petrides.
The U.S. rate hike pushed down the price of gold and other metals; a stronger dollar makes commodities that are priced in the currency more expensive for buyers using other currencies. [GOL/] [MET/L]
That in turn weighed on shares in gold miners such as Fresnillo (>> Fresnillo Plc) and Randgold (>> Randgold Resources Limited).
Housebuilders also underperformed, with shares in Berkeley (>> Berkeley Group Holdings PLC), Taylor Wimpey (>> Taylor Wimpey plc), Persimmon (>> Persimmon plc) and Barratt Development (>> Barratt Developments Plc) all flat to lower.
The decision in the United States to raise rates has led investors to ask when the Bank of England will follow suit and push rates up from their current record low of 0.5 percent, traders said.
Berkeley, which went ex-dividend, was the top faller, down 5.5 percent.
(Reporting by Sudip Kar-Gupta; editing by John Stonestreet and Kevin Liffey)
By Sudip Kar-Gupta and Alistair Smout
