UPDATE: Markets climb as EU leaders near Greek resolution

European markets have surged on reports eurozone leaders will back a 'selective default' on Greek debt.

The single currency bounced back against the dollar to $1.434, up 0.89%, after morning losses which saw the euro fall to $1.414 against the greenback at 12pm.

The main indices are also rebounding on the likelihood of a comprehensive deal on the Greek crisis, which would involve selective default as the key option.

Eurozone leaders are set to kick off a crisis response that would involve a bond buyback and a debt swap but no new tax on banks, Reuters reports.

The French Cac 40 surged by 1.98%, to trade at 3,828.95 points, followed by the German Dax that posted a leap by 1.26%, to trade at 7,312.46.

The EURO STOXX 50 was up 2.26% to 2,766.12 while the FTSE 100 climbed 1.06% to 5,916.68.

The default option started to gain traction after an initial meeting between ECB president Jean-Claude Trichet, French president Nicolas Sarkozy and German chancellor Angela Merkel this morning.

While Trichet reviewed his negative stance on the selective default option earlier today, Sarkozy and Merkel agreed to withdraw the proposed plan for a €50bn bank tax to support the second bailout scheme, worth €115bn.

The decision shunned the tax on banks, which would have raised €10bn a year for five years through a 0.0025% levy on all assets held by European banks.