The CAC 40 index was up three percent in the first half hour. Tuesday's opening gains followed a strong day on Monday, when the market rose 1.75 percent amid greater confidence French banks will survive a liquidity squeeze.

French banks have been at the centre of a nervous few weeks trading, after reports that their US subsidiaries were finding it hard to source dollars and fears that they are overexposed to risky Greek and Italian debt.

But there is now a growing expectation that European leaders will reach a political deal on how to prevent or mitigate any sovereign debt default, and that a plan is afoot to recapitalise ailing private banks.

Banking shares responded to the change in mood, outstripping the market to post huge gains. BNP Paribas, Credit Agricole and Societe Generale led the way, jumping 8.85 percent, 6.61 percent and 6.04 percent respectively.