FTSE rises on Greek deal hopes

European markets made gains on Tuesday morning as the region's leaders firmed up plans for stricter budget discipline and as hopes grew that a deal to rescue Greece would soon be settled.

Last night 25 members of the European Union agreed on a ‘fiscal compact’ for Europe, with only the UK and Czech Republic refusing to sign the German-inspired plan for greater budgetary discipline.

The leaders also approved the early introduction of the European Stability Mechanism, a long-term bailout fund, although there was no agreement on the final size of the fund. Broad measures were agreed on boosting economic growth, targeting high unemployment in particular.

‘Yesterday’s informal European Summit kept the ball rolling in terms of crisis resolution, but it leaves a lot of unresolved business to be tackled at the summit in March,’ said Peter Vandenhoute of ING.

The UK’s FTSE 100 was 0.85% or 48 points higher at 8.30am, hitting 5,719. France’s CAC made similar gains, while Germany’s Dax was 0.44% higher. See the FTSE’s performance and the index’s top winners and losers.

Greek hopes

Despite last night's progress, concerns remain about the fate of both Greece and Portugal, with ongoing talks about a restructuring deal for Greek government debt and pressure growing on Portugal, which itself has come under renewed market pressure owing to its limited room to make adjustments.

Greek prime minister Lucas Papademos (pictured) said negotiators had made ‘significant progress’, with negotiations over the size of losses to be borne by bondholders to be concluded ‘by the end of next week’.

Luxembourg's finance minister Luc Frieden reportedly also said that a deal was near. ‘We are close to finding an agreement... Because the agreement is in the interest of the eurozone but also of the private creditors,’ according to a report on Reuters.

Meanwhile, the Financial Times reported further evidence of the European banking sector’s liquidity squeeze, with some of the eurozone's biggest banks set to double or triple their request for funds from the European Central Bank's emergency funding scheme in February, according to the newspaper.

European markets were also pushed higher by strength in Asia on the back of a much stronger-than-expected increase in manufacturing output in Japan for December.