The blue-chip FTSE 100 index, which had fallen some 5 percent in the first four days of this week to reach 15-month lows, closed up by 1.9 percent at 6,310.29 points.

Yet in spite of Friday's rebound, the FTSE was left nursing losses of 0.5 percent over the course of the week, with the index still bearing the brunt of investors' concerns over the fragile nature of the European economy.

"After hitting a key support level yesterday and bouncing off it, the FTSE is in a consolidation mode. Key resistance exists at around 6,440, so until we climb above that I’m not sure we're out of the woods," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

ROLLS ROYCE SLUMPS

Tullow Oil was the best-performing FTSE stock in percentage terms, surging 8.3 percent after Societe Generale upgraded its rating on Tullow to "buy" from "hold".

But Rolls-Royce missed out on the rally, slumping 11.5 percent after it warned that deteriorating economies in areas such as Europe and China meant its profits would not rise next year as previously forecast.

The FTSE's recovery began after Thursday's encouraging U.S. jobless claims and industrial output data, which helped world stock markets edge up from earlier lows. Comments from St. Louis Federal Reserve Bank President James Bullard that the Fed may keep up its bond-buying economic stimulus programme also helped.

Further evidence of signs of relative strength in the U.S. economy emerged on Friday from data which showed consumer sentiment rose in October to its highest level in more than seven years.

Yet even though many investors say the U.S. economy looks robust, weak German data in the past two weeks has heightened concerns about a lack of economic growth in Europe.

The FTSE 100 hit a peak of 6,904.86 points at the start of September, its highest since early 2000, but has since lost ground and is down around 7 percent since the start of 2014.

Steve Ruffley, chief market strategist at InterTrader, said that if the FTSE could finish October above the 6,398 point level, then it could rebound towards the end of 2014 to challenge record highs in the 7,000 point region.

"A correction is a natural part of the investing cycle. It is not necessarily a bad thing," he said.

(Additional reporting by Atul Prakash; Editing by Catherine Evans)

By Sudip Kar-Gupta