European shares rose on Tuesday on hopes Greece was nearing a debt swap deal needed to avoid a messy default, while European leaders agreed on stricter budget discipline measures to help prevent further debt accumulation in the region.

Banks, many of which have been a focus in the euro zone debt crisis due to their exposure to euro zone peripheral debt were among the top performers, with the STOXX Europe 600 Banks index <.SX7P> rising 1.2 percent.

They have made progress in Greece and the European leaders have endorsed the fiscal pact, said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. There is optimism in the market.

It lowers the risk of instability to the financial system and company earnings. We are overweight defensive, but this is something that could make us change our portfolios as it diminishes the risk to the financial system.

By 8:06 a.m., the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 0.5 percent at 1,035.89 points.

(Reporting by Joanne Frearson)