Paris - European shares rose early on Wednesday, boosted by news that Ukraine's President has reached an agreement with Russia over a ceasefire in eastern Ukraine's Donbass region.

Ukrainian President Petro Poroshenko's press office said in a statement he had reached a deal with Russia's Vladimir Putin on Wednesday on a “permanent ceasefire” for the Donbass region.

Pro-Russian separatists are battling Kiev's forces in the mainly Russian-speaking Donbass region, which is home to most of Ukraine's heavy industry and accounts for about 18 percent of the country's economic output.

At 10:21 SA time, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,387.53 points.

Shares in French luxury handbag maker Hermes tumbled on huge volumes after it struck a deal with bigger rival LVMH that resolves their dispute over LVMH's 23.2 percent stake in the maker of Birkin and Kelly handbags.

Hermes's stock dropped 10 percent, representing a 2.8 billion euro (R40 billion) wipeout in the company's market value - roughly the price of 350,000 luxury Birkin handbags - as the deal quashed speculation over a full takeover of Hermes by LVMH.

LVMH shares were up 2.7 percent.

“The speculative premium has disappeared,” Barclays France director Franklin Pichard said.

Shares in German retailer Hugo Boss also dropped, by 5.4 percent after an investment company controlled by private equity investor Permira placed an 11 percent stake of the company's total capital.

Around Europe, UK's FTSE 100 index was up 1 percent, Germany's DAX index up 1.4 percent, and France's CAC 40 up 1.4 percent, breaking above a recent tight trading range.

European stocks have been moving sideways in the past week, ahead of the European Central Bank's policy meeting on Thursday, with investors split on whether the ECB will unveil immediate stimulus steps to stave off deflation.

“We're expecting a strong verbal commitment from Draghi on Thursday,” said Romain Boscher, global head of equities management at Amundi, which has 821 billion euros ($1.08 trillion) under management.

“The ECB still has plenty of ammunition left, and it will certainly use it when needed. The prospect of further action from the central bank remains very supportive for risky assets such as equities.”

Dovish comments by ECB President Mario Draghi in late August sparked market bets that the central bank is preparing to pump more liquidity into the system, possibly via purchases of government or corporate bonds, a measure known as quantitative easing (QE).

However, sources from within the central bank told Reuters last week that new action at its meeting this Thursday was unlikely but not impossible, and that the barrier to QE was still “very high”.

In a Reuters poll conducted last week, economists saw a 75 percent chance that the ECB would buy asset-backed securities through a quantitative easing (QE) programme. In the poll, 32 of 39 economists said the ECB would conduct QE by March 2015.

While many market participants do not expect the ECB to take major easing steps this week, further measures are considered a matter of 'when' and not 'if' in the face of risks to euro zone growth posed by low inflation as well as the Ukraine conflict. - Reuters