European shares close at new seven-year high after Greek deal

(Updates prices at settle)

* FTSEurofirst 300 up 0.7 pct at new 7-yr high

* Market sentiment improves after Greek deal

* DAX off record high after Ifo miss

* Britain's FTSE lags after HSBC profit falls

By Francesco Canepa and Atul Prakash

LONDON, Feb 23 (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 percent drop in annual profit. The bank's shares fell 4.6 percent and weighed on peer Standard Chartered (HKSE: 2888.HK - news) .

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 percent 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 (Xetra: CBK100 - news) , 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 percent. It has gained 13 percent 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 (LSE: IGG.L - news) , 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 percent after reporting better-than-expected fourth-quarter profits.

[For a related story on funds flowing into European stocks, click on (Editing by Angus MacSwan and Susan Fenton)