* Germany DAX hits record high, FTSEurofirst 300 gains
* Market sentiment improves after Greece deal
* Britain's FTSE turns negative after HSBC profit falls
By Atul Prakash
LONDON, Feb 23 (Reuters) - European equities extended recent gains on Monday, with Germany's DAX hitting an all-time high as investor appetite for riskier assets improved after euro zone negotiators agreed to extend Greece's financial rescue package.
Britain's FTSE 100 index opened higher, but turned negative after index heavyweight HSBC reported a 17 percent drop in annual profit.
Broader market sentiment improved after Athens sealed a deal to avoid a banking collapse by accepting a conditional extension of its bailout programme.
Analysts were cautiously optimistic about the accord, which requires Greece to submit by Monday policy measures it plans to take during the remainder of its bailout period.
Share prices slightly retreated from intra-day highs.
"We have cleared the first hurdle but Greece has to come up with a serious set of measures now," Peter Dixon, equity strategist at Commerzbank, said. "I don't think the game is over yet. Over the course of the next few months, we will be having more discussions and possibly a lot more market volatility."
The DAX index rose 0.7 percent to 11,26,42 points by 0904 GMT after rising to 11,158.55 - its highest ever level, while the pan-European FTSEurofirst 300 index was up 0.5 percent at 1,532.22 points after rising to 1,535.07, a more than seven-year high.
"Whilst there is general relief that by having agreed to a compromise, Greece's membership in the euro seems to be guaranteed for another four months, there are very few doubts that by the time the current agreement runs out markets will have to deal with a similar possibly more serious stalemate," Markus Huber, senior analyst at Peregrine & Black, said.
Among sharp movers, HSBC fell 4.6 percent, the top decliner in the FTSE 100, which was down 0.1 percent at 6,906.02 points after rising as high as 6,943.61, less than 10 points below its record peak of 6,950.60 scaled in late 1999.
"Disappointing numbers and a cautious outlook from HSBC resulted in some strong negative pressure on its share price," Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.
editing by John Stonestreet