European equity markets rose between 2.0 and 5.0 percent in morning trade, while the euro topped $1.40 for the first time since early September.

"Stocks have had a stunning start to the day, and Europe's troubled banking sector is staging a broad-based rally," said Kathleen Brooks, an analyst at traders Forex.com.

"Decisions have been made in Europe, and even if we are short on detail Europe's leaders are talking the right game and the markets seem to like it."

In morning deals, London's benchmark FTSE 100 index jumped 2.11 percent to 5,670.32 points, Frankfurt's DAX 30 soared 3.61 percent to 6,231.79 points and in Paris the CAC 40 rallied 3.73 percent to 3,288.04 points.

Madrid won 2.71 percent, Milan gained 3.89 percent, Stockholm advanced 2.76 percent and Athens surged 4.78 percent.

Europe on Thursday sealed a last-ditch deal to fix its festering debt crisis by shoring up its bailout fund, pledging new funds for Greece and pushing banks to share the pain at a summit vital to the health of the global economy.

After days of talks and two successive summits that dragged on for almost 10 hours as markets and world leaders remained on tenterhooks, EU president Herman Van Rompuy emerged in the wee hours saying: "We took important decisions."

Banking shares rocketed in response, with Barclays up 10 percent at 197 pence in London. Britain's bailed-out lenders, Royal Bank of Scotland and Lloyds Banking Group each gained about seven percent in morning trade. In Paris, BNP Paribas soared 12 percent to 33.7 euros.

"Europe's high command may have delayed their press conference for six hours, but for the bulls it was worth it," said Brooks. "The euro has surged above $1.40."

After surpassing the psychological barrier, the European single currency stood at $1.4013 in London deals compared with $1.3908 late in New York on Wednesday.

Asia-Pacific markets were the first to react to the deal, welcomed also by the region's investors amid fears that contagion of the eurozone debt crisis could plunge the global economy into a fresh recession following the 2009 downturn.

Tokyo closed up 2.04 percent, Hong Kong rallied 3.26 percent, Seoul added 1.46 percent and Sydney won 2.49 percent.

"Overall, the agreement is welcome and addresses the fundamental issues underlying the eurozone debt crisis," said Barry Dixon, analyst at Davy stockbrokers.

"Whether the detail of the agreement is sufficient to quell market concerns over the medium term remains to be seen," he cautioned, sharing the concerns of many investors.

The deal by holders of Greek bonds to accept a 50 percent loss on their investment -- more than double the amount they agreed to at a July summit -- will slash 100 billion euros ($140 billion) from the 350 billion euros owed by Greece.

Convincing banks to erase billions in Greek debt is a key part of a grand deal leaders had pledged to deliver, along with the bank recapitalisation and beefed-up rescue fund.

The lenders had earlier agreed to a recapitalisation to protect themselves against a Greek writedown.

The declaration on recapitalisation, which came after a meeting of all 27 European Union members, lacked any details but sources said it would amount to 108 billion euros.

Ahead of the deal, US stocks indices closed Wednesday with solid gains, including a rise of 1.39 percent for the Dow Jones Industrial Average.