Electronics retailer Dixons Carphone rose 4.8 percent, one of the biggest risers in the FTSE 100 index, with traders citing optimism ahead of the company's first ever Christmas trading update following the merger of Dixons and Carphone Warehouse last year.

Shares in Tesco rose 1.4 percent after Morgan Stanley raised its stance on the shares to "overweight" from "equal weight" and added them to its "best ideas" list.

Analysts at Morgan Stanley said the market was underestimating how far margins could improve, following a Christmas period in which sales declined less than expected.

The FTSE 350 Retail sector was up 1.6 percent, and has gained more than 10 percent in the last month.

"Expectations have been so low that the sector was oversold heading into the Christmas period, anticipating dreadful numbers. While the figures weren't hugely impressive, they did suggest the decline in the sector is coming to an end," IG market analyst David Madden, said.

The blue-chip FTSE 100 index rose for a third straight session and was up 44.51 points or 0.7 percent at 6,594.78 points by 1458 GMT.

The index extended gains in the early afternoon, with traders citing comments from the head of the International Monetary Fund that the European Central Bank should share risk if it embarks on bond buying, as the market expects it will on Thursday.

Volumes were light, with the FTSE 100 trading less than half of its 90 day average volume by 1452 GMT.

The index underperformed a 1 percent rise for Germany's DAX and a 1.5 percent gain on Italy's FTSE MIB, with UK market hindered by its large exposure to commodity-related shares.

Mining shares fell ahead of data from China, which is expected to report on Tuesday that its economic growth slowed to 7.2 percent in the fourth quarter, the weakest since the global financial crisis.

China stocks suffered their biggest one-day percentage drop since the global financial crisis on Monday, hit by record falls for banks.

The UK mining index fell 1.5 percent, with Glencore, BHP Billiton and Rio Tinto, down 1.9-1.4 percent. The sector has fallen nearly 20 percent in two months.

"Tomorrow we have data out of China, which is set to be poor, but I think a lot of that is in the price. With so much negativity already in the price, I'd buy the dips on the major miners," Zeg Choudhry, managing director of LONTRAD, said.

(Editing by Hugh Lawson and Jane Merriman)

By Alistair Smout