European shares have risen to a 12-week high after policymakers agreed to leverage the region's rescue fund four to five times and reached a deal on a 50 per cent write-off for private bond-holders of Greek debt.
France's CAC-40 rose 4.03 per cent on Thursday morning. Meanwhile, the FTSE 100 index of leading British shares rose 2.80 per cent and Germany's DAX was up 3.61 per cent.
The eurozone deal, announced before markets opened on Thursday, will mean private bond holders of Greek debt will have to accept a 50 per cent loss on their investment, while banks will be recapitalised and the size of the currency bloc's rescue fund will be leveraged to $1.4tn.
Now, the banks have to find 106 billion euros ($146bn) to shore up their capital by the end of June, as one part of a three-pronged plan.
The news sent banks shares soaring over six per cent, with the STOXX Europe 600 banking index spiking 9.2 per cent and on track for its biggest one-day gain since May 2010.
Credit Agricole, Societe Generale, BNP Paribas, Deutsche Bank and Royal Bank of Scotland were up between 15.6 and 22.9 per cent.
However, despite the rally, the sector is still down nearly 24 per cent in 2011.
"Even though details are not yet in place, the extension of the [rescue fund] will build a firewall between Greece and the rest," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
Greece is inundated with debt and in its third-straight year of recession. Without a "firewall" in place, its economic troubles could crossover to other eurozone economies, like those of Ireland and Portugal.
Positive impact
Thursday's upswing in European markets suggests that the deal had a positive impact on investor confidence.
"It would be clearly premature to declare the euro crisis as fully resolved. Much more needs to be done, especially regarding fiscal consolidation," Credit Suisse Private Banking said.

"Achieving such a consolidation will be difficult in a phase of slow growth, or in some cases recession."

"Nevertheless, it is our impression that EU leaders have made significant progress on all fronts. This suggests that the rebound in risk assets that has been underway in recent days may well continue for some time."

Analysts said the broad agreement was just the beginning and European policymakers would need to overcome several hurdles to fully resolve the eurozone debt crisis.

Economist Shahin Vallee told Al Jazeera that it will take years before Greece's economy could stand on its own.

"I think that it's clear that whatever comprehensive solution we have achieved over night it hasn't solved the crisis at all," he said.

"It is comprehensive in the sense that it deals with several bits of the crisis - the banking part, the sovereign part, the institutional part.

"But it's not comprehensive in the sense that so long as countries like Greece or Spain cannot borrow on their own, we wouldn't solve anything. And I think that's a few years down the line. We haven't even touched that."

Keith Bowman, an equity analyst at Hargreaves Lansdown, said that European governments will need to act fast in order to fully diffuse the crisis.

"Politicians cannot afford to sit on their laurels. The same degree of urgency is needed over the coming weeks and months to douse the crisis. Europe is only just achieving what the US implemented some two years ago," Keith Bowman, an equity analyst at Hargreaves Lansdown, said.

"In all, whilst scepticism towards the euro's survival persists, investors also now struggle to envisage a world without the euro."

Hendrik Leber, managing partner at ACATIS Investment, said it was good that the contours of the deal had become visible, but the final clarification of some crucial points would take time and keep markets choppy.