European shares rose to their highest in more than six months on Friday, on optimism that euro zone officials would sign off a rescue package for Greece, helping the country to avoid a messy default.
Greek officials say they have done everything asked of them for euro zone finance ministers to agree the 130 billion euro ($170 billion) rescue package on Monday -- a month before Athens needs the money to make 14.5 billion euros of debt repayments due on March 20.
Euro zone banks, many of which have significant exposure to peripheral euro zone countries and have taken a hit on their balance sheets from the long-running debt crisis, rose 1.8 percent.
The banking index has gained more than 15 percent this year, with strategists saying there is optimism that the crisis is being contained. The sector has been boosted by the European Central Bank providing cheap funding.
Every dip in the sector has been perceived as a buying opportunity, said Ian King, head of international equities at Legal & General, which has 356 billion pounds ($653 billion) under management.
Given the extent to which funding is being made available, a European bank would have to try very hard to go bust. And if you use the banking sector as a microcosm of what's going on, the outlook is reasonably good for equities.
King added that even if Greece were to suffer a chaotic default eventually, the impact would not be as severe as it might have been previously.
At 1221 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,084.01 points, and had gone as high as 1,084.27, a level not seen since early August.
Some company results also helped to boost sentiment, though overall reporting season has been mixed.
Lafarge soared 9.4 percent after the world's largest cement maker said it would continue cost-cutting plans after its 2011 profit was hit by write-offs linked to Greece.
Dutch insurer Aegon rose 6.6 percent, even as the fourth-quarter lagged forecasts, with analysts saying they expected the company to do well due to cost cutting and restructuring.
Just over half the companies in the STOXX 600 due to report in the current earnings season have now done so, with 49 percent missing forecasts, according to Thomson Reuters StarMine data.
But King said investors were looking past the results and were more confident because of the improved backdrop in the euro zone and better global growth prospects.
There have been cases where companies have missed expectations and have been marked down but then have recovered sharply which shows people are looking further forward now, he said.
The rally for European equities, up more than 8 percent in 2012, has boosted valuations. The STOXX Europe 600 now carries a forward P/E ratio of 10.6, which could make investors feel they have missed the best opportunities.
However, it is still cheap compared with Wall Street. The Standard & Poor's Index trades at a ratio of 12.6 times.
U.S. earnings season has gone better, with only 31 percent of the S&P missing forecasts.
Corporate results, together with better labour data and economic growth data, have helped U.S. equities reach their highest since the financial crisis of 2008. The Nasdaq is at its highest since 2001.
European shares are still down 9 percent from the 2011 high they hit in February.
We still need some more progress on the sovereign front, King said.
Technically, the outlook remained upbeat for the pan-European index. It has held above key levels such as the 200-day moving average and the 61.8 percent Fibonacci retracement of its fall from the February 2011 high to its September 2011 low.
A satisfactory result in Greece could give it the impetus to push higher still, with around 1,100 the obvious target. Conversely, a break through its short-term uptrend, near 1,065 or so, would signal that the bulls are jumping ship, Bill McNamara, technical analyst at Charles Stanley, said.