LONDON (Reuters) - The FTSE 100 rebounded on Tuesday from a steep fall in the previous session, with investors encouraged by forecast-beating earnings and improving economic data from the euro zone.
The FTSE 100 closed 0.6 percent, or 35.92 points, higher at 6,282.76, after suffering its biggest one-day in three months on Monday as political uncertainties in Spain and Italy and a string of analyst downgrades sparked profit taking from 4-1/2-year highs.
"Despite the general plotline being of renewed European concerns, I do not think the broader economic backdrop has changed materially and yesterday's moves were more position-based than fundamental change," Jack Pollard, analyst at Sucden Financial Private Clients, said.
"In the context of this, we've seen these lows bought and we've traded higher today, along with a tightening in European credit spreads which is helping to underpin the macro."
Yields in Spain and Italy eased after Markit's euro zone composite PMI, which gauges business activity across thousands of companies and is seen as a good gauge of future growth in the currency bloc, hit a 10-month high in January.
The oil price also recovered towards $117 (75 pounds) a barrel, helping the energy sector, which contributed over 11 points to the rally on the FTSE 100.
Oil heavyweight BP added 5 points alone to the index after its fourth-quarter profits beat forecasts, although profits fell.
Oil and gas group BG also boosted the sector as its shares recovered from a 3.1 percent fall in morning trade after it said it would miss 2015 production targets.
Following a more upbeat conference call, the shares surged as much as 6.5 percent on the day, before closing up 2.9 percent. They added the most points to the FTSE 100 index after BP.
"We've been buying them on the rebound after the conference call. They're going to be drilling Egyptian wells to offset the output decline," says Darren Easton, director of trading at London-based Logic Investments.
Chip designer ARM was also a big riser following earnings, gaining 4.4 percent after fourth-quarter profits beat expectations.
British retail sales also rose strongly in January, boosted by the popularity of tablet computers and smartphones which ARM provides parts for, a survey showed.
"Fundamentals are driving individual movers with ARM's results helping to underpin the market, though today's retail sales probably had a bit of spillover given the expectation these were boosted by purchases of technological items," Pollard said.
(Additional reporting by Sudip Kar-Gupta; Editing by Susan Fenton)