Britain’s top shares ended higher on Tuesday after another volatile session, recovering from a fall in the afternoon as Spanish bond yields hit their highest levels of the euro era on worries about the impact of its banking bailout.

Initial relief over an aid deal agreed on Saturday for the country’s banks has quickly turned to concern over how easily Spain will be able to access debt markets in the longer term.

Volatility was also engendered by worries over a possible Greek exit from the euro zone – accompanied by spillover fears for the rest of Europe – if Sunday’s general election in the country returns an anti-bailout government.

The FTSE 100 index closed up 41.37 points, or 0.8 percent at 5,473.74, near the top of a 60 point trading range for the day, in relatively thin volume of 75 percent of the 90-day daily average.

The FTSE 100 volatility index was up 1.8 percent on Tuesday, having gained nearly 4 percent in the previous session.

Many of our clients are shorting risk-assets such as … equities, and if this is the case across other spread betting and CFD providers, then it seems as though we are seeing a tug of war between short term opportunists on the downside and the longer term investor who views these recent declines as an opportunity to buy some undervalued stock. This may be causing the choppy trading at present, said Jordan Lambert, a trader at Spreadex Ltd.

Market heavyweight Vodafone accounted for a chunk of the FTSE 100’s gains, with its 2.1 percent advance equating to around 7 points on the index, with the mobile telecoms firm helped by some positive broker comment.

BofA Merrill Lynch repeated its buy rating and 215 pence price target on Vodafone saying it sees positive catalysts remaining for the group in Europe and the United States.

We believe that Vodafone’s P/E multiples (circa 8.7 times adjusted March 2014 estimated earnings, removing 50 percent of intangible amortisation) still highlight excellent value, the broker said in a note.

Precious metal miners Randgold Resources and Fresnillo were also among the strongest performers, up 3.0 percent and 2.4 percent respectively, as the gold price rose above $1,600 an ounce, with volatile markets favouring the traditional safe-haven metal.

U.S. blue chips were equally volatile on Tuesday, opening higher after big falls in the previous session, before dipping back, and then recovering to be up 0.9 percent by London’s close.

VOLATILITY SUITS ICAP

Inter-dealer broker ICAP was a top British blue chip gainer, up 2.7 percent with Faraday Research seeing the firm doing well in volatile and fluctuating markets.

More volatility and uncertainty would lead to more trades, which in turn leads to more commission for the company. Right now looks to be the calm before the oncoming storm, said David Lowery, Equity Analyst at Faraday Research in a note. With a potential spike in volatility just around the corner, we feel ICAP is perfectly placed to see earnings and profits increase over and above current forecasts.

In marked contrast to the blue chips, and again illustrating the market’s volatility, British mid cap stocks were sharply lower, with the FTSE 250 index down 0.9 percent.

Weakness in British housebuilders was a drag on mid cap sentiment, with Redrow, Bovis Homes, and Persimmon worst off, all down around 2 to 3 percent after some disappointing domestic economic data.

The latest RICS survey showed British house prices falling at a slower pace in May, although the outlook worsened as the euro zone crisis intensified and sales took a temporary hit from the expiry of a tax holiday.

And British manufacturing output posted a surprise fall in April, official data showed on Tuesday, raising the risk of a longer recession and piling pressure on policymakers to take action to boost growth.