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London - European shares climbed to a three-week high on Tuesday, extending the previous session's rally on expectations that Greece was getting closer to a debt deal.
Greece's ATG share index rose 5.3%, adding to a 9% surge in the previous session, while the country's benchmark banking index advanced 8.8%.
The Athens' ATG index remains down around 5% since the start of 2015, due to Greece's debt problems, but it has recovered from a slump last week.
The euro edged back, with some currency traders citing a range of still-formidable political barriers to a Greek debt agreement as weighing on the currency.
However, many other investors were confident of a deal.
Greece presented new budget proposals that euro zone leaders welcomed as a basis for a possible agreement to unlock frozen aid and avert a looming default.
"It now appears that we will have a short-term solution to the problems," said Andreas Clenow, hedge fund trader and principal at ACIES Asset Management.
The pan-European FTSEurofirst 300 index rose 1.5% to its highest level in three weeks.
The eurozone's blue-chip Euro STOXX 50 index - which had risen 4.1% on Monday in its biggest one-day percentage gain since August 2012 - also climbed 1.4%.
Clenow expected a compromise to the Greek debt situation to push European markets back up to peak levels reached earlier in March and April, with the FTSEurofirst still up around 16% since the start of 2015.
Numericable-SFR edged back 1.4% after France's economy minister said a bid by Altice - which is Numericable's majority owner - for Bouygues Telecom risked creating an operator that was "too big to fail" and could threaten jobs.
However, Paris' broader CAC equity index rose 1.5% to go back within sight of its highest level in more than seven years, as a resurgence of activity in France helped eurozone businesses expand at their fastest rate in four years this month.
"The European economy has enough positives to herald a strong recovery even without an ever-falling exchange rate," said Tim Crockford at Hermes Investment Management.
