European shares closed higher on Wednesday after business confidence data was released in Germany showing an increase for the second month in a row.
The FTSEurofirst 300 index provisionally closed 0.4 percent higher at a 19-month peak of 1,142.35 points, after Germany's Ifo business sentiment data rose from 101.4 in November to 102.4 in December. The German DAX index closed 0.3 percent higher.
Market sentiment was also boosted by Standard and Poor's upgrade of Greece's credit rating by six notches. Greece received a "selective default" rating and was upgraded to B-minus with a "stable" outlook. S&P attributed the upgrade to European leaders' resolve to keep Greece in the euro zone.
In Italy, former Prime Minister Silvio Berlusconi warned that Italy may be forced to leave the euro unless the European Central Bank (ECB) gets greater powers to ensure lower borrowing costs.
"If Germany doesn't accept that the European Central Bank must be a real central bank, if interest rates don't come down, we will be forced to leave the euro and return to our own currency," the controversial party leader said, according to regional news agencies.
Banks led the gainers among European shares as expectations of a deal to avoid growth-curbing tax hikes and spending cuts - known as the fiscal cliff - in the United States, kept alive the end-of-year rally in equities.
"Given the recent rally in the market over the last few weeks we have seen an aggressive return to risk. The negative macro headlines seem to be secondary to the move out of safe havens and defensives on the expectations that a fiscal cliff resolution will be achieved," Atif Latif, director at Guardian Stockbrokers, said.