Stock markets surged and oil plunged below $100 a barrel after Donald Trump suggested the US would end its attack on Iran in two to three weeks.
UK borrowing costs also fell sharply as fears of Bank of England interest rate hikes were pared back.
In London, the FTSE 100 was up by nearly 190 points or 1.9 per cent in early trading - though the gains later eased - while Germany’s Dax shot nearly 3 per cent higher and France’s Cac 40 more than 2 per cent.
It followed sharp rallies in Asia overnight with South Korea’s Kospi adding 8 per cent and Tokyo’s Nikkei up 5 per cent. Last night on Wall Street the S&P 500 jumped 2.9 per cent, the Dow Jones by 2.5 per cent and the tech-heavy Nasdaq by 3.8 per cent.
Meanwhile, yields on the UK’s ten-year bonds, known as gilts, slid from 4.92 per cent to as low as 4.78 per cent. They had soared to 5.12 per cent last week, the highest level since 2008.
Gilts had sold off because of fears that the conflict will stoke inflation, forcing as many as three interest rate hikes this year, starting as soon as this month. Markets now expect two hikes, starting from June.
The rally came after Mr Trump said the US is 'finishing the job' in Iran and predicted it will be 'maybe two weeks, maybe a couple of days longer to do the job'.
The FTSE's surge on the first day of April comes after a 6.7 per cent plunge In March – the worst monthly performance since the Covid pandemic in 2020.
It was helped by the huge sell-off in oil, with Brent crude plummeting by as much as $20 a barrel, or 17 per cent, to $98 – before later edging back above $100.
The economic disruption caused by the war centres on the closure of the Strait of Hormuz, through which a fifth of the world’s oil and gas normally passes.
Analysts have warned that long term effects will persist even after the strait is opened. And the oil price is still well up from $72 a barrel where it was before the war.
Big risers on the FTSE 100 include stocks battered by the war such as British Airways owner International Airlines Group, which rose 5pc. Banks were also buoyant, with Barclays and Lloyds each up 4pc.
But oil majors BP and Shell took a hit on the falling crude price, down 3pc and 2pc.
Susannah Streeter, chief investment strategist at Wealth Club, said: ‘There’s been a roar of recovery on equity markets as investors cling to high hopes of an end to the war with Iran in weeks.
‘Relief is showing up in oil prices, with Brent crude, the benchmark, dropping below the $100 a barrel mark. However, at this level crude is still around 50 per cent higher than in mid-February before tensions with Iran seriously ratcheted up.
‘This signals that scepticism still remains about Trump’s claims of progress, and worries persist about how extraction from the conflict is still set to be complex.
‘Even if the war ends in weeks, the damage wreaked to energy facilities in the region will take years to repair.’
