Britain's major stock index <.FTSE> ended the day up 0.6 percent, while mid-caps <.FTMC> rose 0.7 percent.

U.S. consumer prices rose more than expected in January, sending stocks across Europe and Britain sharply down, but they rebounded rapidly from the initial shock. The FTSE 100 covered a 100-point range on the day as stocks swung wildly.

Anticipation had been building ahead of the data release as investors looked for a sign after concerns over a pick-up in inflation and rising bond yields triggered a sell-off across global equity markets last week.

"Today's firmer-than-expected print, which is in some sense encouraging given it reflects a normalisation in components that have been notably weak, may extend recent market volatility as expectations for Fed rate hikes are recalibrated higher," Andrew Wilson, CEO of Goldman Sachs Asset Management for EMEA, said in a note.

Bernstein analysts said sentiment had reached such a low level following last week's sell-off that a "buy" signal was triggered and stocks would find a floor thanks to strong earnings and a healthy economy.

Continued strength in commodities helped boost the index, with BHP Billiton (>> BHP Billiton Plc), Rio Tinto (>> Rio Tinto) and Glencore (>> Glencore) driving the sector higher.

Shares in bottler Coca-Cola HBC (>> Coca Cola HBC AG) were the standout performers, rising 4.8 percent and sealing their best one-day gain in six months after the company reported a rise in full-year sales.

WPP (>> WPP Group) shares gained 3.6 percent, their best daily gain in 14 months, as more brokers pointed to encouraging signs for the advertising agency which had performed poorly last year.

Liberum analysts said WPP has been one of the two best-performing FTSE 100 stocks in the recent correction thanks to positive news from French rival Publicis (>> Publicis Groupe) and Japan's Dentsu (>> Dentsu Inc).

Mirabaud Securities analyst Neil Campling wrote: "Client conversations at the start of 2018 are now about growth, whereas 2017 was a year focused solely on expense reductions."

Sky (>> Sky) gained 2 percent after the broadcaster won the bulk of Premier League soccer rights at a lower price than it currently pays.

Financials contributed the most to gains, adding nearly 18 points to the index.

HSBC (>> HSBC Holdings), Barclays (>> Barclays) and Prudential (>> Prudential) rose between 0.8 percent and 2 percent, joining in a broader rally in Europe thanks to some well-received results from continental peers.

Gold miner Randgold Resources (>> Randgold Resources) led the FTSE with a 4.9 percent gain, with peer Fresnillo (>> Fresnillo) also up 4.6 percent as gold rebounded against a falling dollar.

Developments in South Africa, where the ruling ANC party said it would support a no-confidence vote in President Jacob Zuma, likely helped shares in banking and insurance firm Old Mutual (>> Old Mutual) rise 3 percent, the best-performing financial stock.

Old Mutual was founded in South Africa and its operations there benefit from gains in the rand, which was up 2 percent at a 2 1/2 year high against the dollar.

In mid-caps, shares in construction group Galliford Try (>> Galliford Try plc) sank 19 percent after the firm said it planned to raise 150 million pounds from investors in coming weeks.

It said Carillion's (>> Carillion) collapse had increased its cash commitments on an Aberdeen joint venture by more than 150 million pounds. Its shares dropped 18 percent, on track for their worst fall since the aftermath of the Brexit vote in June 2016.

(Reporting by Kit Rees; editing by Mark Heinrich)

By Kit Rees and Helen Reid