Technical charts show the STOXX Europe 600 banking index, home of lenders such as Barclays, UBS and Banco Santander, breaking above a major resistance level at 179.14 points, which sends a long-term bullish signal for the sector.

The level represents the 50 percent retracement of the index's two-year slump between late 2009 and late 2011, and breaking above it confirms the sector's sharp recovery rally since late July, sparked by European Central Bank President Mario Draghi's comments that the ECB would do 'whatever it takes' to safeguard the euro.

"The fact that the index surpasses its January peak and closes above the 50 percent retracement level is a strong signal that there's more room on the upside," a Paris-based trader says.

"Now we need the index to close the week above the level to really confirm the break out."

At 1015 GMT, the index is down 0.03 percent at 180.36. The index's next major resistance level is at 194 points, representing the 61.8 percent Fibonacci retracement of the 2009-2011 slump.

Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net