European shares rose on Friday in a tentative relief rally, recouping back most of the losses in the previous session after a majority of European leaders agreed to work towards stricter budget discipline, at a crucial summit.

The deal was not backed by Britain, however, and was short of any immediate, extra measures to ease the euro zone debt crisis, making fund managers wary about increasing long-term holdings in risky assets.

Banks, which have been a focus of the euro zone debt crisis due to their exposure the region's debt, were the best performers in Europe following the deal, with the STOXX Europe 600 Banks index <.SX7P> up 2.6 percent.

Let's hope this is the one that resolves the crisis, but I think the gains are only a relief rally, Andy Lynch, fund manager at Schroders, which manages $307.93 billion (196.76 billion pounds), said.

The implementation is going to be difficult and we are still underweight financials. Banks remain in a difficult place, the European economy is slowing quite sharply and that will result in more bad debts and write downs.

The FTSEurofirst 300 <.FTEU3> index of top European shares provisionally closed up 1.3 percent at 986.32 points, after falling 1.5 percent in the previous session.

(Reporting by Joanne Frearson)