European shares extended the previous session's strong gains Friday as signs Greece would seek political consensus on a new aid package and dump a referendum helped cap some fears of an imminent default, although the outcome remains uncertain.

Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters.

It seems a Greek drama has been avoided for the time being as there are some signals that the proposed referendum on the bailout package will be scrapped, said Koen De Leus, strategist at KBC Securities, in Brussels.

But the situation is far from clear yet and there is a possibility that the Greek government might fall, which would mean that no bailout money will be available to them for some time. Any such outcome would create more uncertainties.

At 0807 GMT (4:07 a.m. EDT), the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.2 percent at 991.79 points after climbing 1.9 percent in the previous session.

Banks, many of which have a significant exposure to the peripheral euro zone economies and have taken a hit on their balance sheets, were among the top gainers. The STOXX Europe 600 banking index <.SX7P> rose 1.6 percent, while BNP Paribas (BNPP.PA) rose 5.4 percent.