(REUTERS) -- European shares were flat on Monday morning ahead of a meeting of euro zone financeministers to discuss terms of a Greek debt restructuring deal, with banks rallying on a report about easier capital rules.
The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.03 percent at 1,043.58 points by 4:43 a.m. ET.
Banks were among the best performers after traders cited a Financial Times report that France and Germany have called for a relaxation of global bank capital rules to prevent lending being choked off.
More broadly, investors were cautious after private creditors said on Sunday they had come to the limit of what loss they could concede. If a deal is not reached, there could be a messy default with a possible knock-on effect on the global economy.
The market is being held back as the Greek discussions are not concluded, said David Coombs, fund manager at Rathbone Brothers, which has $23.5 billion under management.
If the talks linger on there is a danger the market will focus on the contagion effects. We are still hold defensive positions in Europe.
The STOXX Europe 600 Banks index .SX7P was the best performing sector, up 1.5 percent.
French banks Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA) were among the top movers, up 7.4 percent and 5.2 percent, also helped by news French lenders were taken advantage of cheap European Central Bank funding to ease pressure on their balance sheets.
French lenders, which have some of the biggest exposures to crisis-hit euro zone economies like Greece and Italy, had borrowed 107 billion euros in long-term ECB funds as of January 17 and would more or less cover 2012 financing needs.
UniCredit (CRDI.MI), which has fallen 17 percent this year after a rights issue, was another top mover, up 6.5 percent, buoyed also by positive broker comment by UBS.
We maintain our preference for large banks who can rely on strong capital and funding structure and achieve economies of scale, UBS analysts said in a note.
Traders were unsure if the gains would last as the index neared overbought territory, with its relative strength index -- a technical momentum indicator that determines overbought and oversold conditions -- at 67.3. a reading of 70 and over is considered overbought.