The blue chip index jumped 1.9pc, ending the day 114 higher at 6,014 – a fresh 30-month high – after soaring more than 100 points in the first minute of trading.
Banks and miners led the charge as fears of renewed economic malaise dissipated, reducing credit risk and lifting commodity prices.
BP topped the leaderboard on speculation that Royal Dutch Shell had considered making a takeover bid during the Gulf of Mexico oil spill.
Encouraging manufacturing data helped to lift sentiment in the UK. Activity in the sector, which remains the country's largest single industry, put in its strongest surge in 16 years last month on the Markit/CIPS manufacturing purchasing managers' index.
Export orders rose at their fastest rate since April, employment in the sector climbed for a ninth month in a row, and order books are flush with work.
Howard Archer, chief UK economist at IHS Global Insight, described the figures as "fantastic" and "boding well for manufacturing activity in the near term".
The FTSE 250, a better gauge of the UK economy given its domestic weighting, soared to its highest level since July 2007, rising 164 points to 11,723.
Resurging confidence was helped by signs that UK mortgage approvals are stabilising, having risen in November after falling for the previous six months, according to Bank of England data.
Yesterday's positive UK news followed a survey by accountants Deloitte that finance directors are more optimistic about taking on staff than at any time in the past three years.
"We're playing catch-up to the European markets which had a good start to the year ... the rally is being supported by some very good economic data," said Angus Campbell, head of sales at Capital Spreads.
Surveys of industrial activity earlier in the week from Europe and the US also beat expectations, helping lift European markets, which were open on Monday.
Christmas Eve last year was the only other day in the past 30 months that the FTSE 100 closed above 6,000, when it reached 6,008 points.
The strong global economic data and indications that China's rising inflation is coming under control helped buoy confidence in commodity stocks, despite late falls in oil, copper and gold prices yesterday.
Brent crude fell $1.93 to $92.91 a barrel after a succession of new 27-month highs.
Solid underlying demand is replacing speculation in commodities, said John Kilduff, a partner at Again Capital in New York. "Built into pricing for commodities was a premium for flight to safety," he said. "With the economic recovery now in plain view and equities coming back into favour, that vestige of safety is losing its appeal."
However, the economic improvement was accompanied by the threat of rising interest rates. Inflation expectations are at their highest in more than two years, a YouGov poll for Citi showed, at 3.5pc – up from 3.3pc in November.
Citi economist Michael Saunders warned that the Bank of England may have to raise rates as its 2pc "inflation target appears to be losing credibility".
