(Reuters) - European shares rose on Friday and were headed for their biggest weekly gain in three years on hopes of a bold solution to the euro zone debt crisis at a summit next week.
At 1227 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1.3 percent at 988.34 points.
There's growing optimism that at last the political leaders in Europe are knocking their heads together, and coming to a sensible conclusion and that the ECB is going to be more willing to provide support to the euro zone, said Richard Jeffrey, chief investment officer at Cazenove Capital Management.
Jeffrey said there was scope for shares to make further gains.
There is reasonable underlying support for equities. Valuations still look sensible.
The pan-European index is on track to post a weekly gain of 8.9 percent, its biggest gain since November 2008. Coordinated action by central banks to provide cheaper dollar funding for European banks was a major factor in boosting shares this week.
However, the index is still down more than 11 percent this year, on worries about the euro zone crisis and weak economic growth.
The biggest gainers on Friday included many that have fallen most in 2011. France's BNP Paribas (BNPP.PA) soared 8.4 percent, but is down about 40 percent this year, having been one of the banks to have suffered writedowns on euro zone peripheral debt.
The STOXX Europe 600 Banking Index .SX7P rose 3.4 percent.
French President Nicolas Sarkozy said he and German Chancellor Angela Merkel would meet next Monday to outline joint proposals to put to a December9 EU summit, seen as make-or-break for the 12-year-old single currency.
The proposals will include a treaty incorporating tougher budget discipline and a European Monetary Fund to support countries in difficulty, but some differences remain between leaders on issues such as fiscal integration.
Miners gained, tracking higher metals prices, as the central banks' move continued to boost the outlook for demand.
The STOXX Europe 600 Basic Resources Index .SXPP rose 2.9 percent.
The euro zone's blue chip Euro European STOXX 50 .STOXX50E index was up 2.1 percent at 2,361.04 points, breaking above a key resistance level, the 61.8 percent retracement of the index's drop from a peak in late October to a low hit last Friday.
Philippe Delabarre, analyst at Trading Central, said the next target on the index's intraday front-month futures contracts is 2,390, followed by 2,3420, and suggests a stop-loss at 2,305.
The confirmation of a bullish continuation pattern in pennant allows us forecasting further upside. Furthermore, the (Relative Strength Index) RSI indicator is supported by an ascending trend line, he said.
Citigroup was also upbeat, saying European shares could see double-digit returns in 2012.
It said earnings will fall 10-15 percent and that the euro area will see a recession, but there will not be a break-up of the euro. It said low valuations and political progress in the euro zone would support equities.
Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 .STOXX carrying a one-year forward price-to-earnings of 8.9, compared with 10.9 for the S&P 500 .SPX.
Citi said it was long on GUNS (Germany, UK, Netherlands, Switzerland and Scandinavia).
The market's huge volatility over the past three months has spooked long-term investors, leaving the market to short-term stock and derivative traders playing intraday moves using alternative strategies ranging from technical analysis to quant trading.
The market has become more and more opaque, it's been very difficult for long-term investors, said Philippe de Portzamparc, CEO of French broker Portzamparc, which specializes in small and mid-size companies.
We favor a return to investments made into the real economy and away from exotic financial products. The industry has to reverse the disastrous image of a financial market ruled by algorithmic programs and high frequency trading.
Investors were hoping for a strong reading from the U.S. job market, with economists expecting U.S. nonfarm payrolls, due at 1330 GMT, to have risen by 122,000 last month, which would outpace October's 80,000.