The benchmark Hang Seng Index added 330.54 points to 20,019.24 on turnover of HK$109.46 billion ($14.09 billion).
It was the index's highest close since September 7, and a 24 percent increase over its 16,170 finish on October 4.
Dealers said the Europe pact, which included convincing banks to take a 50 percent writedown on their Greek debt holdings, injected optimism into markets that have been jittery for months amid concern about Europe's fiscal woes.
"There is good news everywhere," said Tanrich Securities investment manager Jackson Wong.
Hong Kong Exchanges & Clearing, the city's stock market operator, was among the day's biggest gainers, rising 7.2 percent to HK$136.80 amid strong trading volume.
Banking giant HSBC, which has a large European presence, rose 4.2 percent to HK$70.10, while Industrial & Commercial Bank of China rose 2.0 percent to HK$5.02, after posting better-than-expected results in the third quarter.
The bank's net profit rose 27 percent year-on-year to 54.36 billion yuan ($8.55 billion), versus the average 53.24 billion yuan forecast by six analysts in a Dow Jones Newswires poll.
Chinese shares closed up 1.55 percent. The Shanghai Composite Index, which covers both A and B shares, gained 37.80 points to 2,473.41 on turnover of 104.2 billion yuan ($16.4 billion).
The benchmark index jumped 6.74 percent this week, the biggest gain since the five trading sessions ending October 15, 2010, when it rose 8.49 percent.
"Market sentiment has become very optimistic in the near term with higher risk appetite, although mid-term problems in the European debt crisis have yet to be resolved," analysts with Guotai Junan Securities said in a note.
Developers led the gains after China's housing minister was quoted in state media saying restrictions on home purchases were the "last resort" to rein in the country's fast-rising property prices.
These curbs will be phased out once a national database on property ownership is established, the state-run China Securities Journal reported Friday, citing Jiang Weixin.
Poly Real Estate jumped 4.4 percent to 10.17 yuan while China Vanke, the nation's largest property developer by market share, rose 3.1 percent to 7.91 yuan.
However, Du Jinsong, an analyst at Credit Suisse, told Dow Jones Newswires: "People are too optimistic... If you read the minister's comments carefully, he's not saying that the limits will be loosened anytime soon."