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Europe shares close higher as pharma stocks surge

European shares closed higher on Tuesday, with merger and acquisition activity starting a shortened trading week on a positive note.

Read MorePharma M&A is back—Can it cure the sector's ills?

The pan-European FTSEurofirst 300 Index provisionally closed higher by 1.4 percent at 1,346.94 points on Tuesday, with many European bourses reopening after the Easter holiday period.

The health care sector surged over 3 percent and was the standout sector gainer, as GlaxoSmithKline (GSK) and Swiss giant Novartis agreed to create a new consumer health care business.

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Novartis said on Tuesday it had agreed to acquire GSK's oncology products for $14.5 billion, plus an additional $1.5 billion contingent on a development milestone. GSK, meanwhile, will pay $7.1 billion plus royalties for Novartis' vaccines business, excluding its flu business, Novartis said.

Shares of GSK closed around 5.2 percent higher and Novartis finished the day higher by around 2.3 percent.

Read MoreWhy cancer drug newcomer GSK is getting out: CEO

There were also reports that U.S. drug company Pfizer could launch another bid for the U.K.'s AstraZeneca. This came after a reported £60 billion ($101 billion) takeover approach was rejected.

"(It) would create the world's largest medical company, which would comfortably (be) inside the top 10 largest companies in the world with an estimated market cap of £150 billion," said Evan Lucas, market strategist at IG Markets, in a research note.

"This will be a deal to watch as it could be a major catalyst for more mega deals."

AstraZeneca refused to comment when contacted by CNBC, but it shares closed higher by around 4.7 percent on Tuesday. Pfizer shares on the Dow Jones Industrial Average rose 1.1 percent in the U.S.

Read MorePfizer-AstraZeneca deal? Not as crazy as it sounds

Also in the U.S., stocks in Allergan jumped after Valeant Pharmaceuticals International offered around $45 billion the Botox maker.

Overall, U.S. stocks rose on Tuesday, with the S&P 500 extending its longest winning run since October. Stocks advanced further after data showed existing home sales hitting 4.59 million in March, versus a 4.55 million estimate.

Back in Europe, Dutch electronics firm Philips reported a dip in net profit compared to the same period last year and shares closed around 4.7 percent lower.

Read MorePhilips stock hit hard as it warns on challenging 2014

Plus, a "flash" estimate from the European Commission on Tuesday indicated that euro zone consumer confidence rose to -8.7 in April from -9.3 in March.

"Hopefully, a further strengthening in consumer confidence to a 78-month high in April, stabilizing labor markets and very low consumer price inflation will increasingly underpin consumer spending and help euro zone economic recovery to gain further traction over the coming months," wrote Howard Archer, chief U.K.and European economist at IHS Global Insight.

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