Rallying telecom stocks and a bullish start to the new earnings season propelled Europe's top shares to fresh 22-month closing highs on Wednesday.
The STOXX Europe 600 telecoms index rose 2.7 percent, the top sectoral gainer, with traders citing a Financial Times report saying top telecommunication firms were discussing a pan-European infrastructure network to unite Europe's disjointed national markets as a reason for the rise.
The FTSEurofirst 300 Index provisionally closed up 7.76 points, or 0.7 percent, at 1,167.96, also lifted by a bullish start to the U.S. earnings season after aluminium giant Alcoa's in-line profits and above-consensus revenues.
Equities are being lifted by the apparent reduction in risk posed to the macro economy from the euro zone debt crisis and budget issues in the United States.
"It has been a good start to 2013 and equity investors have been buying into the idea that we have negotiated the worst case scenario," said William De Vijlder, chief investment officer for strategy & partners at BNP Paribas Investment Partners.
According to Thomson Reuters Datastream, European banks traded on 9 times their one-year forward earnings, against a 10-year average of 9.7 times and below 11.4 times for the pan-European STOXX Europe 600 index.
According to consensus estimates, European earnings were still expected to rise about 9 percent in 2013, despite a downward revision in the past couple of months, analysts said.
"Expectations are quite low going into the earnings season as we saw a lot of downward guidance in the past few months. There is potential for an upside surprise to come through," Robert Parkes, equity strategist at HSBC Securities, said.
"We think earnings will grow by about 6 percent in Europe this year. We have got some topline growth coming through and a little bit of margin expansions," he said, adding his forecast was slightly below consensus.
Thomson Reuters StarMine data showed the fourth quarter earnings could even be 0.9 percent above analysts' forecasts.