European equities rallied on Monday to close higher and end a four-day losing streak, as data from the euro zone managed to outweigh any caution over the possibility the U.S. Federal Reserve could moderate its stimulus measures. U.S. stocks also rallied on Monday trade.
The FTSEurofirst 300 index provisionally closed higher by 1.2 percent at 1,257.84 points, with all sectors posting gains.
Gains on German blue-chip stocks added the most points to the FTSEurofirst 300, with the country's DAX index closing up 1.7 percent to 9,163.56 points.
Flash composite purchasing manager's index (PMI) figures released by Markit on Monday showed that business activity for the euro zone in December was above expectations. The figure rose to 52.1 against 51.9 for November. The figures for Germany showed a slight drop but continued to show an expansion in the sector with the December composite PMI falling to 55.2 versus 55.4 in November.
In France, however, the composite PMI index fell to a seven-month low of 47.0 in December, below November's final reading of 48.0. "The last flash PMI readings for 2013 paint a worrying picture on the health of the French economy," Markit's senior economist Andrew Harker said in a note.
(Read More: French economy struggles as Germany strides ahead)
U.S. stocks also surged on Monday, with the Dow and the S&P 500 bouncing back from two consecutive weekly declines, as Wall Street tried to measure what's ahead for monetary stimulus one day ahead of a two-day Federal Reserve meeting.
Economic reports on Monday had a gauge of manufacturing activity in the New York region climbing less-than-expected in December, and U.S. productivity climbing 3 percent in the third-quarter.
Another report had U.S. industrial production rising 1.1 percent in November, compared to consensus estimates of a 0.4 percent hike.
Investor caution remains
The U.S. central bank will conclude a two-day meeting on Wednesday amid talk that stronger economic data in recent weeks, including employment and consumer confidence, argue in favor of a reduction in monthly bond purchases. While caution remains, today's performance on both sides of the Atlantic point towards investors believing tapering will not occur until next year rather than this month.
(Read More: Why the Fed won't taper in December: Goldman Sachs)
Asian equity markets fell after a preliminary reading of Chinese manufacturing activity fell to a three-month low in December, according to purchasing managers' index (PMI) survey conducted by HSBC.
In Germany, Chancellor Angela Merkel will begin her third term in office on Tuesday – three months after winning the September 22 election – after her junior coalition partners, the Social Democrats, voted to join her in a "grand coalition" on Saturday.
(Read More: Dollar bulls bet on mini-taper this week)
In stocks news, shares of Moncler, the Milan-based maker of luxury skiwear, rose more than 40 percent after going public on the Milan Stock Exchange.
The company's stock price closed at 14.97 euros after pricing at 10.20 euros in an initial public offering. Reports suggested the shares were 30 times oversubscribed. The company sold a 31 percent stake, including a "greenshoe" overallotment option, raising close to $1 billion. The sale initially valued the company at more than $3 billion.
(Read More: Moncler shares rise more than 40% in market debut)
Shares of Aggreko closed higher by 8.5 percent after the power provider reported that its full-year results are likely to be ahead of expectations.
Telecom Italia shares closed up 5.06 percent after BlackRock, the world's biggest money manager, said it had upped its stake in the Italian firm to 7.8 percent.
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