THE FTSE 100 Index pushed to a new two-and-ahalf year high yesterday, buoyed by reports that Europe’s bailout fund may be enlarged.

The FTSE rallied more than one per cent or 70.7 points to 6056.4 as banking and mining stocks recovered from Monday’s losses.

The market was boosted by talk that finance ministers from some of the richest nations in Europe had agreed to pump extra money into European Stability Fund at a meeting in Brussels.

The reports helped reassure investors that the eurozone would be able to deal with another debt crisis.

Fears surrounding the ongoing debt woes on the continent have troubled European markets for months, as uncertainty mounts over the future of other key economies, including Portugal and Spain.

There were also successful bond auctions in Spain and Greece that added to confidence about the eurozone.

Barclays, which is heavily exposed to the Iberian peninsula, moved slightly ahead by 1.2p to 307.8p, while HSBC added 5.8p at 709.3p. But Lloyds lost earlier gains, slipping 0.3p to 67.8p.

The euro strengthened on the back of the improved sentiment, and was up against the pound at 1.19. But the pound was up against the dollar at 1.60 after figures revealed UK inflation surged to 3.7 per cent in December.

Fashion house Burberry topped the risers’ board after it delivered another forecast-beating trading update.

The retailer surged more than five per cent, up 56p to 1115p, after underlying revenues rose 27 per cent in the third quarter and it guided the market towards full-year profits at the top end of City expectations.

The rebounding price of many commodities helped miners recover from the previous day’s losses.