Technical indicators showed that even though the rally could stall in the near-term, the longer-term picture remained bullish, with many forecasters expecting the blue-chip FTSE 100 index to rise over the course of 2013.

The FTSE 100 closed up 0.4 percent, or 22.05 points higher, at 6,154.41 points - its best finish since the start of 2013 and its highest level since around mid-2008.

The UK market also outperformed falls on Germany's DAX and France's CAC-40 indexes.

Mining stocks, which account for much of the weighting of the FTSE 100, featured prominently on the leaderboard, with Evraz rising 4.5 percent to end the day as the best-performing blue-chip stock.

The broader FTSE 350 mining index gained 0.2 percent, after growth in China - the world's top metals consumer - beat forecasts in the fourth quarter of 2012.

Traders focused on the overall picture for a growing global economy rather than fresh signs of UK economic weakness, after British retail sales fell.

"Growth in China is good for the miners, whereas investor sentiment has turned against the retail stocks," said JN Financial derivatives trader Rick Jones.

The drop in UK retail sales hit sterling on the foreign exchange markets and sent down retail stocks such as Kingfisher , which was the worst performer on the FTSE 100 as it fell 4.3 percent.

TECHNICALLY "OVERBOUGHT"

Technical indicators showed the FTSE 100 was in technically "overbought" territory, indicating the rally may stall in the near term even though the longer-term trends remained bullish.

The FTSE 100 currently has a relative strength indicator (RSI) reading of 73 points - just above the 70 point RSI level which shows that an index is "overbought" and is often used by traders as a sign to sell in the near-term.

Thurleigh Investment Managers, which manages around 270 million pounds ($431.2 million) of assets, said it would look to sell a position on the FTSE 100 if it rose to around 6,250 points, in order to book gains on any rally up to that level.

Thurleigh fund manager Edward Allen said his portfolio was relatively "underweight" on the FTSE 100 as he saw better returns from Asian and U.S. equities.

"We see better opportunities elsewhere," he said.

However, Cavendish Asset Management fund manager Paul Mumford said the FTSE 100 would continue to benefit as investors increasingly turn away from bonds and into equities.

Equity dividends are offering better returns than bonds, where returns have been hit since interest rates have been cut to record lows by central banks to boost investment and spending in the face of any weakening of the global economy.

The index also remains above both its 200-day and 50-day simple moving average levels, which many traders have used as a sign that the FTSE 100 could rise further in the months to come.

"Pension funds have to put more money into the equity markets," said Mumford.