European shares rallied on Tuesday, with stronger than expected German sentiment data prompting investors to return to economically sensitive sectors like autos and technology after a three session losing streak.
The keenly-watched German ZEW investor sentiment index jumped to a three-year high this month, beating even the most optimistic economist forecasts.
The data gave an early flavor of the kind of economic improvement that strategists and investors are counting on to fuel European equity market gains for this year.
"Some investors are asking if the improvement in leading indicators is sustainable, and we think it is," said Andreas Huerkamp, equity strategist at Commerzbank.
"The start of recovery of leading indicators should continue and then, in the second quarter, companies will start to become more optimistic again. That should trigger the next upwards move in the market."
A strong start to the week on Wall Street - which had been closed on Monday for a public holiday - also fuelled appetite for European equities, helping the market extend gains in afternoon trade.
The pan-European FTSEurofirst 300 Index provisionally closed up 1.1 percent at 1,172.23 points - more than recovering the previous three session's losses to post its best finish in three weeks.
In stock news, Danone shares boosted the food & beverage sector after the French firm reported better-than-expected sales. It pledged to return to strong growth via cost cutting in 2013, including 900 jobs cuts. Shares in Danone were up 5.22 percent in afternoon trade and food and beverages were the strongest sector gainer.
The autos sector was the second strongest sector gainer, despite a data release from the Association of European carmakers that showed European car registrations reached a new low in January.
