Euro zone finance ministers and the International Monetary Fund agreed late on Monday on measures to cut Greek debt by 40 billion euros by 2020, reducing it to 124 percent of GDP and paving the way for Athens to receive its next installment of bailout cash.
It falls short of a resolution, but it definitely takes a layer of systemic risk out of European markets, so that's a support for risk assets, including equities, Mike Ingram, market analyst at BGC Partners, said.
But volumes are still at August levels... and I don't think we have the momentum or volume to punch through [recent resistance levels]
UK banks have less exposure to Greece than their French or German counterparts but are exposed to the euro zone financial system as a whole. Their shares gained 0.7 percent.
Royal Bank of Scotland led FTSE 100 risers, adding 3.5 percent. Of British banks it is one of the most highly exposed to the Greek debt crisis, and lost 1.1 billion pounds on Greek bond investments in 2011.
The better performing banks today are all restructuring stories, like RBS and Lloyds, so it's a risk rally if you like. said Robert Quinn, Chief European Equity Strategist at Standard & Poor's Capital IQ.
Some of the stronger banks don't get the same level of uplift, he added. Lloyds gained 2.9 percent, while HSBC added only 0.2 percent.
RBS also benefitted from an upgrade by UBS, who cited the positive regulatory implications of Canadian central bank head Mark Carney's appointment as Bank of England governor.
We think the appointment... provides the opportunity for the UK regulatory environment to be recast with a more conciliatory tone, the investment bank said in a note.
This helps reduce the tail risk associated with investing in UK banks.
At the close, the FTSE 100 was up 12.99 points, or 0.2 percent, at 5,799.71, with financials, a sector that includes banks, insurers and asset managers, adding 6.9 points to the index.
Unrevised UK third-quarter growth data, showing the economy expanded 1 percent on the quarter, also supported market sentiment.
However, investor demand was not extended into the energy sector, which took 4.7 points of the index. The heavyweight sector suffered as brent crude oil eased below $111 per barrel.
Demand for oil fell despite the Greek debt deal, as there was a stark reminder of the challenges that the euro zone faces when the OECD cut its global growth forecasts on Tuesday, saying the region's crisis is the greatest threat to the world economy.
The index's gains were made in thin volumes of just 80 percent of its already low average 90 day volume.
The FTSE eased from its session high of 5,823.18, and was both unable to break through last Friday's high, set after the index gained 3.8 percent last week, and failed to recoup its 0.6 percent loss on Monday.
While the nagging doubt of Greek sustainability may have been removed, note that the FTSE 100 has failed to break its Friday and 13-day prior highs. This begs the question of whether a breather after the recent up-move from 5,600 is still to materialise, Mike van Dulken, head of research at Accendo Markets, said.