LONDON (REUTERS) - European shares closed at a new seven-year high on Monday, boosted by a deal late on Friday to extend Greece's financial rescue package.

Britain's FTSE 100 index was the only major index to close lower, albeit only slightly, after HSBC reported a 17 per cent drop in annual profit. The bank's shares fell 4.6 per cent and weighed on peer Standard Chartered.

Investors in continental Europe were encouraged after Greece sealed a deal with euro zone partners to avoid a banking collapse by accepting a conditional extension of its bailout programme and agreeing to present a reform plan.

The pan-European FTSEurofirst 300 index ended 0.7 per cent higher at 1,535.08 points, its highest level since early 2008.

"We have cleared the first hurdle but Greece has to come up with a serious set of measures now," Peter Dixon, equity strategist at Commerzbank, said. "Over the course of the next few months, we will be having more discussions and possibly a lot more market volatility."

Germany's DAX index set a new record high but trimmed gains after the German Ifo business climate index came in below market expectations, even though it set a seven-month high.

The DAX closed up 0.7 per cent. It has gained 13 per cent since the start of 2015 and currently trades in overbought territory on a number of momentum indicators such as Bollinger bands and stochastic indexes.

"The Ifo index was a little bit weaker than expected but we only saw a small reaction," Christian Henke, an analyst at IG, said. "The sentiment is bullish but the DAX is slightly overbought so a small consolidation is possible."

Dutch mail group PostNL was the top gainer in Europe, surging 11.4 per cent after reporting better-than-expected fourth-quarter profits.