London's blue chip index closed up 129.56 points, or 2.2 percent at 6,027.37, bettering the average return on the first day of trading after the new year over the last 12 years of about 1.2 percent, according to Thomson Reuters data.
The fuel for the fire was provided in the United States where the House of Representatives ratified a deal to stave off a series of growth-threatening tax hikes and spending cuts in the short term.
Johan Jooste, chief market strategist, Merrill Lynch Wealth Management EMEA, said in a note investors in Europe would be satisfied with the deal for now, but a sustained break above previous years' highs required a positive outcome of the fiscal and budget negotiations that are set to continue through to March.
Miners were the biggest risers, up 5 percent, having lagged broader market gains in 2012, with the sector also aided by solid global PMI data, particularly from China, which helped to allay fears over the demand outlook.
Anglo American, which lost more than 20 percent in 2012, climbed 5.8 percent as some analysts tipped the firm for a turnaround in fortunes this year.
Heavyweight oils and banks rallied too, pushing the FTSE 100's performance up nearly 15 percent since June 2012 lows.
The U.S. fiscal deal also helped to calm investors with the VIX - a crude gauge of investor fear - back down around November lows after spiking to six-month highs before the U.S. agreement was announced.
But some analysts warned the deal, which boosted markets and averted immediate threats to the economy, merely papered over large cracks and did little to resolve other political showdowns on the budget in coming months.
"This equity rally looks like a perfect profit-taking opportunity to our minds," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
He said the agreement did not address the U.S. fiscal crisis and noted the debt ceiling has been reached with neither party in the U.S. minded to give any further ground.
"Credit rating agencies are waiting in the wings with a U.S. downgrade on their minds and the Q4 reporting season will likely be dreadful. Take profits now ... beat the rush," Batstone-Carr said.
WILL GAINS LAST
A solid first day of the year does not guarantee a strong January. Although the FTSE 100 has averaged a 0.4 percent rise in the first month of the year since 1984, since 2007 five out of six Januarys have resulted in losses - the exception being 2012 when it rose 2 percent.
IG Index said its data showed 68 percent of their clients who have an position open on the FTSE were currently short -betting the index was ripe for a pullback.
Technical analysts said traders should be aware of the support levels which will need to be respected if the bulls are going to remain in control.
"The FTSE 100 will need to maintain the 6,000 key level to then reach for 6,150 where we may then see a significant barrier that could push the index back lower," Sandy Jadeja, chief technical analyst at City Index said in a note.
There were only three fallers on the FTSE 100 approaching midday, among them supermarkets WM Morrison and Sainsbury which lost 2.1 and 2.6 percent respectively on concerns about festive trading and the sector's defensive make-up.
"November and December saw poor sales growth. Kantar and various other sources suggest that trade through the festive season was difficult, with total industry sales growth negligible," analysts at Oriel Securities write in a note.
Oriel cut its target price for Sainsbury to 300 pence as it thinks trading has become much tougher for the company since it posted interim results, while Jefferies cuts its target price for WM Morrison to 310 pence.