After rallying as much as 1.1% in the afternoon trade, the blue-chip index closed 0.4% higher, with heavyweights mining, banks and insurance among the top boosters.

The FTSE 250 index ended 0.2% lower. However, losses were capped by engineering firm Renishaw Plc, which surged 19% to a record high after saying it is seeking a buyer after its founders announced their plans to sell their respective majority stakes in the company.

Sunak is expected to announce more borrowing on top of almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts in his annual budget statement on Wednesday to steer the economy through its third coronavirus lockdown.

"Fiscal measures over the past year have acted like a bridge from one side of the COVID-19 crisis to the other. But bridges do not work if they only take you three quarters of the way across the ravine," said Karen Ward, chief market strategist EMEA at J.P. Morgan Asset Management

"I believe the Chancellor should err on the side of an extension that is too long, rather than one that is too short."

Global stimulus measures and optimism about an economic rebound from vaccination rollouts has helped the FTSE 100 recover more than 35% from a coronavirus-driven crash last year, but the possibility of rising inflation and higher bond yields has rattled sentiment.

Among other stocks, Travis Perkins, Britain's biggest seller of building materials, fell 3.3%, after it restarted the process of demerging its Wickes home improvement business.

French Connection Group Plc tumbled 8.2% after saying it was seeking new offers after a suitor backed out of preliminary talks to buy the struggling fashion retailer.

(Reporting by Shivani Kumaresan and Devik Jain in Bengaluru; Editing by Subhranshu Sahu, Maju Samuel and Barbara Lewis)

By Devik Jain