In its first day of trading after the deal, the blue-chip FTSE 100 index gained 1.6%, logging its best day since Nov. 9.
International companies such as Unilever and Diageo gave the biggest boost to the FTSE 100 despite a firmer pound, while drugmakers AstraZeneca and GlaxoSmithKline also added to the gains.
"The deal should see sentiment towards the FTSE indices recover just as the dividend payout ratio improves, vaccines are rolled out and overseas revenues accelerate. We lift UK equities to Bullish," analysts at brokerage Jefferies wrote in a note.
The coming days will provide a first taste of the effects of Brexit and regulators on both sides of the English Channel will be on alert for market dislocations on Jan. 4, the first trading day of the new year.
"The honest answer is we do not know what January 1st will hold. In all likelihood, there will be delays and bedding-in period as the new reality and processes are explored and enacted," said Jeffrey Halley, senior market analyst at OANDA.
The deal would ensure traded goods that make up half of annual EU-UK commerce remain free of tariffs beyond Dec. 31.
The domestically-focussed FTSE 250 index climbed 1.7% to its highest level since Feb. 25.
The UK stock market has tracked a global rally this year following the coronavirus-led crash in March, but lagged European and U.S. peers on fears of a long road to pre-pandemic levels of economic growth.
On individual stocks, shares in Hut Group rose 8.9% after the e-commerce company said it would buy U.S. online retailer Dermstore from Target Corp for $350 million in cash.
British insurer Admiral gained 3.4% after reports of Zoopla Property Group buying its Penguin Portals and Preminen businesses.
(Reporting by Shivani Kumaresan in Bengaluru; Editing by Subhranshu Sahu, Aditya Soni and Emelia Sithole-Matarise)
By Shivani Kumaresan
