European shares extended gains on Thursday as investors applauded a deal European leaders and banks struck to draw a line under the euro zone's spiraling debt problems.

"The deal agreed is something the market can certainly work with for now and politicians basically gave the market what it needed," said Markus Huber, head of German sales trading at ETX Capital.

By midday Egypt-time, the pan-European FTSEurofirst 300 index of top shares was up 3 per cent at 1,013.49 points, extending earlier gains.

The index is on track for a fifth straight week of gains and the biggest monthly rise in more than two years, but is still down 10 per cent this year.

Across Europe, Britain's FTSE 100 index was up 2.5 per cent, Germany's DAX gained 4.49 per cent while Italy's FTSE MIB climbed 4.5 per cent.