LONDON (Reuters) - The FTSE 100 ended slightly higher on Wednesday after a sharp decline earlier in the session, with energy and mining stocks rallying following a recovery in crude oil and industrial metals prices.
Expectations that the European Central Bank will take fresh measures to support the region's economy and that the U.S. Federal Reserve's final statement of the year later on Wednesday will be less hawkish also improved sentiment, analysts said.
The blue-chip FTSE 100 index .FTSE finished 0.1 percent higher at 6,336.48 points after hitting an intra-day low of 6,240.32 points. It rose 2.4 percent on Tuesday.
"A stabilisation in crude oil prices has helped calm fears in the equity markets. We believe that we are still in a 'buy-the-dips' market environment," Robert Parkes, equity strategist at HSBC, said.
"For European markets, we are getting some favourable tailwinds in terms of currency and oil price moves, but the growth environment is pretty lacklustre and the Fed could start hiking rates next year. On balance we expect the market to gradually grind higher next year."
A Reuters poll forecast the FTSE 100 will reach a record high by the end of 2015, but uncertainty over the outcome of May's national election will curb gains early next year.
The UK Oil and Gas index .FTNMX0530 surged 3.4 percent, helped by a 3.3 to 3.6 percent jump in shares of oil companies such as BP (BP.L), BG Group BG.L and Tullow Oil (TLW.L) after a late rally in crude oil prices.
Brent crude LCOc1, which is still down nearly 50 percent in six months, moved above $60 a barrel on Wednesday as U.S. data showed falling crude inventories.
"A firming oil price and hopes of a 'Santa rally' is enticing the masses to join the party," Marc Kimsey, senior trader at Accendo Markets, said.
Analysts said the market also got some support from comments by senior European Central Bank policymaker Benoit Coeure, who said he saw a broad consensus on the bank's Governing Council for more action and that the issue was how best to do this, with buying government bonds "the baseline option".
Miners also bounced following a recovery in metals prices. The UK mining index .FTNMX1770 rose 1.8 percent, helped by a rise of 0.7 to 2.7 percent in shares of Rio Tinto (RIO.L), BHP Billiton (BLT.L) and Anglo American (AAL.L).
Among other movers, Lloyds Banking Group (LLOY.L) was down 2 percent. The body which manages the state's shareholding said on Wednesday Britain will sell more shares in Lloyds in the next six months.
Dixons Carphone (DC.L) rose 3 percent after the electricals and telecommunications retailer posted a 30 percent increase in first-half profit.
Mid-cap Catlin Group CGL.L rose 10.8 percent after saying it received a takeover approach from XL Group (XL.N) that valued it at 2.53 billion pounds.
Editing by Robin Pomeroy