UK and European banks soar on eurozone deal

UK banking stocks drove this morning's FTSE 100 rally, with Barclays, RBS and Lloyds all surging roughly 6% on the news a eurozone debt deal has been reached.

Under the deal, banks must raise around 106bn euros in new capital by June 2012 to protect them against losses resulting from any future government defaults. However, certainty around the level of the capitalisation boosted banks' share prices today.

The FTSE 100 rallied by around 2% soon after opening this morning to 5,676.45 with the bulk of the recovery stemming from the UK's major banks.

Barclays climbed 6.72% to reach 190.6p per share, while Royal Bank of Scotland gained 5.73% to 26.2p per share. Lloyds climbed 5.11% to 36p.

Miners were also boosted by the eurozone optimism, with Rio Tinto gaining 5.3% to 3,475p per share, Shell climbing 1.32% to 2,359.5p and BHP Billiton up 3.71% to 2,041.5p.

European equity markets also jumped with the French Cac 40 up 3.51% to 3280.73 and the German Dax rising 3.46% to 6224.52.

Continental bank shares soared with Soc Gen up 9.8% at €20.58, BNP Paribas rising 11% at €33.37 and Deutsche Bank up 7% at €30.60

However, bond prices fell on the news of the European debt plan, with German 10-year bund yields jumping the most in more than 11 weeks. Ten-year bunds snapped two days of gains as the plan dampened investor demand, climbing 11 basis points or 0.1% to 2.15%.

Last night a three-pronged agreement was reached by eurozone leaders after late night talks in Brussels. European countries have agreed a deal to resolve the region's debt crisis which will include Greek bond holders taking a 50% haircut and see the eurozone bailout fund increased in size.

Leaders said private banks holding Greek debt had accepted a loss of 50% on their bond holdings as part of the deal.

The deal also approved a mechanism to boost the eurozone's main bailout fund to €1trn (£880bn; $1.4trn).

A framework for the new fund is to be put in place in November.