by Gavin Lumsden, Sarah Miloudi 

16.18: The FTSE 100 has risen to 5,375.96 - a 115.77 point gain, or 2.20% rise - as the European Union (EU) edges closer towards a banking union and as the likelihood of quantitative easing grows stronger.

The European Commission has put forward sweeping powers that would allow regulators to intervene to prevent widespread collapses.  Although the plans, if approved, would not come into force until 2015, they have given investors confidence that panic can be contained in the event of a bailout.

Stocks and commodities have also gained strength on stimulus hopes.  Earlier today, investment bank Morgan Stanley said it expected the Bank of England to restart its QE programme this week with a £50 billion cash injection, and leaders in Germany are said to be searching for an urgent solution that could help Spain accept aid without the associated stigma.

Mario Draghi, the European Central Bank (ECB) president, quashed some of this optimism, however, by ruling out another long-term refinancing operation (LTRO).  Brent crude still embarked on a rally above $100 a barrel, while gold rose 1%.

13.52: The US is set to open higher as investors pin their hopes on a speech by Mario Draghi offering some form of solution to the eurozone's woes.

As the FTSE 100 held firm at 5,311.50, up 51.31 points or 0.98%, Dow Jones futures pointed to a gain of 26 points at the sounding of Wall Street's opening bell.

The European Central Bank (ECB) earlier today said it would hold rates constant at 1%. and president Draghi will follow up on this announcement when he appears for his routine press conference later today.  It is hoped Draghi will signal that some sort of rescue plan is in the pipeline, following reports that Germany has been working with European Union officials to draft a solution to help Spain's banks.

08.30: The FTSE 100 has inched higher on its first day's trade following the Bank Holiday weekend, with the index rising to 5,307.96, up 47.77 points or 0.91%.

Although events in the eurozone are once again set to dominate the agenda, European shares gained during early morning trade.  The single currency also pulled off its two-year low to rise 0.4% to $1.2490.

07.55: European markets, including the UK, are tipped to rise when trading begins in a few minutes amid hopes that Spain's appeal for aid for its banks will focus the minds of authorities in Europe. Attention is fixed on what response the European Central Bank will make when it meets today to the warning yesterday from Spain's prime minister that it faces a situation of 'extreme difficulty'.

Rajoy said bond markets were closing on Spain as investors saw the high risk to its sovereign credit rating from the country's banking crisis.

Rajoy urged Europe to prove that the euro was 'irreversible' by implementing a banking union and launching eurozone bonds.

This could prompt the ECB to cut interest rates from their current 1% although it is seen to be more likely to indicate a cut as soon as next month.

Finance ministers and central bank governors yesterday agreed to coordinate their response to the eurozone crisis, amid report that Spain may receive a credit line from the European Financial Stability Facility.

This and encouraging US services data helped Wall Street and Asia markets advance overnight.

www.citywire.co.uk/