* FTSEurofirst 300 index ends 0.8 percent higher
* Greek shares up 11.3 pct, biggest 1-day gain since 2011
* Germany's DAX share index hits new record high
* Santander, BP shares rise after results
By Atul Prakash
LONDON, Feb 3 (Reuters) - European shares closed near a seven-year high on Tuesday and Greek banking stocks soared after the country's new government softened calls for writing down its debt.
Athens proposed ending a standoff with its creditors by swapping the debt for growth-linked bonds. The proposals contrast with the government's strident vows last week to ditch the austerity conditions imposed under its existing bailout.
Athens' benchmark index ATG ended 11.3 percent higher, the biggest one-day percentage gain since August 2011. The country's banking index surged nearly 18 percent. National Bank of Greece, Alpha Bank and Eurobank rose by 13.9 to 20.8 percent.
"Greek banks have massive potential to recover, because if you get a debt deal and Greek banks get some help, then they can reinforce their balance sheets and carry on trading," Edmund Shing, global equity fund manager at BCS Asset Management, said.
Greek Finance Minister Yanis Varoufakis, in London on Monday to reassure private investors that he was not seeking a showdown with Brussels over a new debt agreement, said the new government would spare privately held bonds from losses, a source told Reuters.
However, German Chancellor Angela Merkel said Greece was still working out plans for its debt and declined to comment on the apparent softening of Athens' stance.
Shares in other southern European markets also outperformed, with Spain's IBEX and Italy's FTSE MIB both up 2.6 percent.
The euro zone's blue-chip Euro STOXX 50 index closed 1.3 percent higher after reaching its highest level since September 2008. The FTSEurofirst 300 ended 0.8 percent higher at 1,478.80 points, just below a seven-year high of 1,490.02 set in late January. Germany's DAX closed up 0.6 percent after hitting a new record high.
"The market is currently hoping that Greek negotiations of (its) bailout terms will run quite smoothly. There are some signs that there might be a compromise in the making and there will not be any kind of default," Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.
Spain's Santander, the euro zone's biggest bank, rose 4.6 percent, after reporting a nearly 70 percent jump in fourth-quarter profit. Its results were lifted by earnings from its lending business and as charges on bad loans fell.
Commodity stocks also rallied, supported by a sharp rise in metals and crude oil prices. The STOXX Europe 600 Oil and Gas index rose 3.5 percent, while the European basic resources index gained 3.6 percent.
Oil major BP rose 2.8 percent, having also beaten profit expectations for the fourth quarter. Although it took a $3.6 billion impairment charge and cut capital expenditure, it maintained its quarterly dividend. (Additional reporting by Blaise Robinson in Paris; Editing by John Stonestreet and Susan Fenton)