Leaders of the Eurozone threw a lifeline to debt-stricken Greece that includes an extra €109bn of government money as well as a significant contribution from private sector bondholders.
The euro jumped to a two-week high as the currency was boosted by the deal.
Investors are now looking for the US to agree a way to protect its credit rating by raising its debt ceiling.
Banks led the gains on London's blue chip index in early trading with Barclays surging by more than five per cent.
RBS jumped by more than four per cent while Lloyds gained more than two per cent.
Insurer Aviva was also flourishing with a rise of more than two per cent.
Vodafone was up 1.6 per cent after the telecoms giant gave an upbeat statement on its positive performance in emerging markets.
BSkyB edged up 0.2 per cent after the fallout from Rupert Murdoch's failed bid for the company.
There were few significant fallers with pharmaceutical giants AstraZeneca and GlaxoSmithKline edging down.
BP also dropped 0.2 per cent while drinks giant Diageo also saw a marginal fall.
On the FTSE All-share easyjet shot up by 12 per cent after it announced a revenue rise fuelled by a jump in passenger numbers.
Lloyd's of London insurer Beazley said it sank to a loss in the first half of the year after taking a $183m (£112m) hit from natural disasters including the Japanese earthquake, but its share price held up.
Asian stocks rose overnight as Eurozone sensitive players like HSBC, which makes up a chunky 15 per cent of Hong Kong's Hang Seng index, bounced back.
The banking sector was also stoked by better than expected results from US lender Morgan Stanley yesterday.
Meanwhile in the domestic retail sector John Lewis said its weekly sales had risen as the torrential rain had sent more customers through its doors.