European shares extended gains in morning trade on Wednesday, with banks taking the lead after sources said global regulators plan to give banks a grace period before they have to implement new, stronger capital rules.

At 1012 GMT (5:12 a.m. EST), the pan-European FTSEurofirst 300 index of top shares was up 1.1 percent at 1,029.33 points, the highest level since December 4.

Banks added the most points to the index. Deutsche Bank, Banco Santander, HSBC and BNP Paribas were 1.1 to 4.9 percent higher.

The market was also supported by positive economic data, with the euro zone's dominant service sector grew at its fastest pace in over two years during early December while the manufacturing sector grew at a rate not seen since March 2008, key surveys showed.