European markets ended in the green but off their earlier highs Thursday, following disappointing data about factory activity in Mid-Atlantic U.S.
Stocks were largely bullish throughout the session, however, due to strong corporate earnings from the likes of Nestle and expectations that the Federal Reserve will cut interest rates further.
Stocks are oversold and due for a rally because investors have already priced in a slowdown in earnings and a recession in the U.S. economy, analysts told CNBC Europe.
"The market can still go up because it's the massive risk discounts priced in right across the financial system that are responsible for equities being so low at the moment," Simon Goodfellow, head of European equity strategy from ING Wholesale Banking, told "Squawk Box Europe."
The Federal Reserve lowered its U.S. economic growth forecast and the FOMC's minutes from the previous month signaled more monetary easing.
Oil hit a new record high above $101 a barrel Wednesday on increasing supply and economic concerns, but eased towards $98 a barrel following strong crude inventory data.
In corporate news, the world's biggest food company, Nestle, beat forecasts in 2007, with a 15.8 percent jump in net profit. The Switzerland-based company announced it was raising its dividend as organic sales growth of 7 percent.
CEO Peter Brabeck told CNBC the company was well placed to deal with higher input costs, sending shares 3.5 percent higher.
Defense contractor BAE Systems hit targets with a 22 percent rise in underlying profit. The UK company said it expects another year of good growth in 2008. Shares were 1.2 percent higher.
In the financial sector, troubled bank Societe Generale's shares closed 2.3 percent down, as operating profit dropped 77 percent in the fourth quarter, in line with expectations. The bank warned that it could yet announce further writedowns in 2008.
German Allianz's profit fell by more than half as strength in its insurance business failed to offset damage from subprime writedowns. Allianz shares ended 0.8 percent higher.
And in the Netherlands, shares in satellite navigation device maker TomTom fell 9.3 percent, despite the group reporting sales doubled in the fourth quarter, as analysts called the company's 2008 outlook conservative, according to Reuters.