European shares rise on Greek debt deal, led higher by banks

* Euro STOXX 50, FTSEurofirst 300 both up 1.6 pct

* Euro zone banking index rises 2.3 pct after Greek deal

* Mid-cap Alent (LSE: ALNT.L - news) surges 44 pct on M&A news (Adds quote, detail, updates prices)

By Atul Prakash and Alistair Smout

LONDON, July 13 (Reuters) - European shares rose on Monday after euro zone leaders reached an agreement to move forward with a bailout loan for Greece to avert bankruptcy after all-night talks in Brussels.

Euro zone leaders made Greece surrender much of its sovereignty to outside supervision on Monday in return for agreeing to talks on an 86 billion euro ($94.95 billion) bailout to keep the country in the single currency.

The Athens Stock Exchange has been closed since June 26, but Greek equity assets listed in the United States climbed on the news.

While markets cheered the fact that Greece looks set to remain in the euro zone, there was still some caution, with the deal yet to be passed by the parliaments of Greece, Germany and elsewhere.

"We're seeing a relief rally ... and a shift back into a modest 'risk-on' mood as some of the worst fears have been removed," said Andrew Milligan, global head of strategy at Standard Life Investments.

"As we go through the details, however, it's very clear that there is a sizeable number of hurdles to jump over, especially in Athens."

The euro zone's blue-chip Euro STOXX 50 index hit a two-week high and was up 1.6 percent by 1336 GMT. The index has gained about 9 percent since last Tuesday's close.

The pan-European FTSEurofirst 300 index rose 1.6 percent to 1,567.81 points, while Germany's DAX, France's CAC and Britain's FTSE 100 rose by between 0.7 percent and 1.9 percent.

The euro zone's banking index advanced 2.3 percent, helped by gains for Societe Generale (Paris: FR0000130809 - news) , Credit Agricole and UniCredit (Milan: UCG.MI - news) , the shares of which were up by between 2.2 percent and 3.1 percent

The region's volatility index, a crude indicator of investor concern, dropped nearly 4 points to hit a two-week low.

Ronny Claeys, senior strategist at KBC Asset Management, said that in the long run investors will try to find answers to questions such as whether the deal Athens has agreed with its European peers fundamentally resolves the issue of Greece's debt burden.

Shares (Frankfurt: DI6.F - news) in mid-cap Alent spiked 44 percent after U.S. chemicals maker Platform Specialty Products Corp said it would buy the British company for about 1.35 billion pounds ($2.09 billion) in cash to expand its portfolio and reduce costs.

Among fallers, International Personal Finance (LSE: IPF.L - news) dropped 19.9 percent, the biggest drop on the STOXX Europe , after a proposed law change in Poland that could hit the company's results. ($1 = 0.9057 euros)

Europe bourses in 2015: http://link.reuters.com/pap87v Asset performance in 2015: http://link.reuters.com/gap87v Today's European research round-up (Editing by David Goodman)