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Europe Shares Close Higher as Risk-On Rally Resumes

European shares closed higher on Wednesday, as better-than-expected U.S. housing data led the Dow and the S&P 500 to another all-time high. The pan-European FTSEurofirst 300 Index unofficially closed up 0.7 percent at 1,245.41 points, its highest level since mid-2008.

(Read More: This Bullish Stock Indicator Is at a 58-Year High)

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FTSE
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DAX
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CAC 40
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IBEX 35
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Home builders' confidence in the U.S. rose in May, with sales expectations at the highest level in more than five years, according to the National Association of Home Builders. Homebuilders including Beazer, KBHome and Toll Brothers traded higher on the news.

In Europe, preliminary growth data showed the euro zone contracted for the sixth straight quarter in the first quarter of 2013, marking the longest recession since records began in 1995.

(Read More: France Slips Into Recession, Germany Disappoints)

German growth data was worse-than-expected with the country narrowly avoiding a recession. Meanwhile, France's economy entered a recession, contracting by 0.2 percent month-month in the first quarter.

Meanwhile, Italy's economy shrank by more-than-expected, extending the country's recession to seven straight quarters and making it the longest since records began in 1970.

"Despite some positive data signals from the euro zone, such as industrial output released in the prior session, markets have this morning had a reminder that troubles in the euro zone are far from over," said ETX market strategist Ishaq Siddiqi.

(Read More: Markets 'Glass Half Full' on Weak European GDP)

UK Upgrades Growth Outlook, Cuts Inflation

Outgoing Bank of England Governor Mervyn King presented his final inflation report on Wednesday, in which he upgraded the U.K.'s growth outlook and cut the inflation forecast. This was in-line with analysts' forecasts, even though inflation remained stubbornly above the central bank's 2 percent target in March.

(Read More: Bank of England Offers Ray of Hope for UK Economy)

In other news, Fitch Ratings upgraded its credit rating on Greece to B-minus from triple-C on Wednesday, prompting yields on Greek 10-year sovereign bonds to fall below 9 percent for the first time since 2010.

Swiss Index Gains 1.5%

Switzerland's benchmark SMI index outperformed other European markets on Wednesday, boosted by strong gains at pharmaceutical groups Novartis and Roche, and food company Nestle.

Meanwhile, shares in Commerzbank jumped nearly 12 percent, topping gainers on the Stoxx 600, as investors bought back stock sold in anticipation of a share placement by Germany's bank bailout fund.

Another big gainer on Wednesday was budget airline Easyjet, which closed around 8 percent higher after it reported a small-than-expected pre-tax quarterly loss.

(Read More: EasyJet First Half Improves as Britons Flee Cold Winter)

However, shares in Statoil closed roughly 5.5 percent down after oil production numbers from Norway missed estimates. Statoil, along with Shell and BP, was also raided by European Union authorities looking into manipulation of oil prices.

(Read More: EU Raids Offices of Big Oil Firms Amid Price Probe)