By Sara Sjolin, MarketWatch

FTSE 100 climbs to highest since 1999

LONDON (MarketWatch) -- European stock markets moved firmly higher on Wednesday, boosted by reports that Greece will ask for an extension to its loan agreement later in the day.

The Stoxx Europe 600 index picked up 0.5% to 378.93, after a volatile day on Tuesday, when it eked out a 0.1% gain. Greece's Athex Composite index added 2.7% to 860.88, reversing after a 2.5% slide on Tuesday. Greek banks rallied, with shares of Piraeus Bank SA up 8% and National Bank of Greece SA 7.6% higher.

Greek progress: Sentiment in Europe was lifted by hopes that Greece and its international creditors were getting closer to a debt agreement that will keep the country financially afloat when the current bailout program expires on Feb. 28.

According to an official with knowledge of the situation, the Greek government will ask for an up to six-month extension to its loan agreement, but not request a continuation of the full bailout program. Greece has resisted the terms of the current rescue program, arguing that the conditions are hurting the country's economy and society.

The terms of the proposed deal are reportedly still under negotiation. But Germany has already indicated that it won't accept a mere loan agreement without a formal extension of the bailout program, including the strict austerity conditions attached.

If Greece doesn't get some sort of loan or program extension before the end of the month, the country risks running out of money and defaulting on its debt. A meeting of eurozone finance ministers -- the Eurogroup -- broke down abruptly on Monday, underscoring how far apart the two sides are in negotiating a deal.

"The Greek government is proposing to reverse reforms, which is completely unacceptable for parliaments in Berlin, Den Haag or Amsterdam. We are still far away from a deal, and the risk of 'Grexit' remains elevated, at 35%," said Christian Schulz, senior economist at Berenberg, in emailed comments on Wednesday.

Concerns have risen that Greece may withdraw from the eurozone -- a "Grexit" -- if the country's new anti-austerity government is unable to come to an agreement with its international lenders.

The European Central Bank will on Wednesday review the emergency liquidity assistance granted to Greek banks, and economists largely expect the funding line to remain open.

Other European markets: The U.K.'s FTSE 100 index added 0.2% to 6,910.28, on track for its highest close since 1999. U.K. unemployment data and minutes from the latest Bank of England meeting are due later in the day.

France's CAC 40 index climbed 0.8% to 4,791.17, while Germany's DAX 30 index gained 0.5% to 10,951.54.

Movers: Shares of Peugeot SA rose 1% after the French car maker said it narrowed its loss in 2014, boosted by strong sales in China and cost cutting.

Accor SA gained 1.8% after the hotel group said profit rose 77% last year.

Carlsberg AS (CABJY) fell 2.1% after the Danish brewer reported a sharp drop in profit in the fourth quarter.

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