European stocks extended their gains around midday, as shares of financial institutions rallied in the wake of an agreement by European leaders for tighter euro zone budget rules.

Sentiment was also boosted after a source told Reuters China's central bank plans to create a new vehicle to manage two investment funds worth a total of $300 billion (190 billion pounds), one targeting investments in the United States and the other focused on Europe.

At 11:42 a.m. British time, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.9 percent at 982.30 points.

(Reporting by Blaise Robinson)