Banks helped catapult Britain's FTSE 100 .FTSE to a 3.9-percent gain on Monday, as Barclays (BARC.L) sky-rocketed after saying it would not need fresh capital. The FTSE 100 index .FTSE closed up 156.54 points at 4,209.01, its biggest one-day jump since early December. Barclays soared more than 73 percent to above 84 pence after the bank said in a letter to customers it is not seeking capital from private investors or the state as it remains profitable and can absorb a 2008 writedown of 8 billion pounds. "This... has strengthened investors' confidence in Barclays and across the sector as a whole. However, as impressive as today's performance is, the rally needs to be put in context. Shares in Barclays are still around 50 percent lower than they were just two weeks ago," said David Evans, market analyst at BetOnMarkets.com. Banks across Europe joined the rally, despite ongoing signs of fragility in the sector. ING (ING.AS) said it faced a 2008 loss of 1 billion euros, ousted its chief executive and cut 7,000 jobs, but news the Dutch government was guaranteeing assets on more generous terms than expected boosted the stock. The UK banking index .FTNMX8350 gained 10 percent, with Lloyds (LLOY.L) jumping 32.3 percent , Royal Bank of Scotland (RBS.L) surging 19.8 percent and HSBC (HSBA.L) up 5 percent. But the FTSE 100 is down more than 5 percent so far this year, after plunging more than 31 percent last year -- the worst annual drop since its launch in 1984. U.S. stocks rose too on Monday, with investors cheered by a report showing a surprise rise in sales of U.S. existing homes in December.

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