Santander and Credit Agricole led an 11 percent surge by European bank stocks on Monday after policymakers agreed a near $1 trillion rescue package to stop the Greek debt crisis from spreading.
The rally by the bank sector was its biggest one-day surge for 14 months and clawed back most of last week's 14 percent slump, when the sector was battered by fears about the financial sector's exposure to a sovereign debt crisis.
"The main reason for the panic last week was the government bond market was grinding to a halt in Europe.
"We've had a big move by European authorities … a big liquidity injection, a big support package, Spain and Portugal are putting more measures on the table to cut their deficits, so everything you wanted to see over the weekend has happened," said Arturo de Frias, an analyst for Evolution in London.
By 0800 GMT the STOXX Europe 600 banking index was up 10.7 percent at 206 points.
Spain's Santander and BBVA each jumped 17 percent, Italy's UniCredit and Intesa SanPaolo each surged over 15 percent, France's Credit Agricole and Societe Generale stormed over 16 percent higher, and Belgium's KBC Groep jumped 19 percent.
Analysts said the surges were understandable given the scale of losses over the even steeper falls of the last month.
All banks were sharply higher. HSBC rose 7 percent, UBS jumped 11 percent and Barclays rallied 14 percent.
Bank credit default swaps (CDS), which reflect the risk that a company will default on its debt, tightened sharply. The iTraxx senior financial index was about 60 basis points tighter at 124 basis points.
Portuguese bank CDS were about 175 basis points tighter, French bank CDS were about 100 basis points tighter and UK bank CDS around 50 basis points tighter, a trader said. Credit Agricole five-year CDS were at 132.5 bps, about 100 bps tighter.
"We have seen moves like this before, during 2008 when various measures were announced," the trader said.
Analysts at Kepler Capital Markets said the crisis has been "fiercely addressed" and that value remained in the banking sector as so far the crisis has not done any significant harm to banks, who should continue to rebuild their balance sheets.
The rescue package, hammered out by European Union finance ministers, central bankers and the International Monetary Fund (IMF) through the weekend to resolve a Greek debt crisis that has threatened to sink the euro and unravel euro-zone unity, supported the euro and analysts said was a decisive move to calm financial markets.
