European stocks trimmed losses on Friday to close narrowly in the black after a batch of positive U.S. data suggested the world's largest economy grew more than initially estimated in the third quarter.
U.S. wholesale inventories rose in September by the most in nine months as wholesalers sharply boosted stocks of farm goods and oil, while a survey showed U.S. consumer sentiment rose to its highest level in more than five years in November.
Friday's China data and recent improvement in leading U.S. economic indicators including employment, manufacturing and housing were also positive for the market in the medium term. China's annual industrial output growth rose more than expected in October, further raising expectations of a modest rebound in the last quarter.
Concerns remained however about the U.S.'s "fiscal cliff" — $600 billion worth of automatic spending cuts and tax hikes due to kick in on January 1 — which could drive the country back into recession if no solution is reached.
The pan-European FTSEurofirst 300 index closed provisionally 0.1 percent higher at 1,098.41, having earlier hit an intra-day low of 1,086.11 points.
The euro zone blue-chip Euro STOXX 50 index provisionally closed up 0.3 percent at 2,486.39 points, extending gains after breaking above a late October low in 2,467 area.
"We think that an agreement will be reached and the fiscal cliff is going to be sized down," Matthias Thiel, a strategist at M.M.Warburg & Co in Hamburg said.
"There is a chance the negotiations are going to frighten the stock market in the short term but in general we think that a solution should be reached and that's why investors should buy on those dips."
Charts showed a very bearish candlestick formation earlier this week called a 'bearish engulfing' candlestick, or 'outside reversal' which usually signals a sudden reversal after a rally. The index hit a three-week high on Wednesday, before sharply retreating.
Adding to poor sentiment were worries about a weakening German economy and as Greece inched towards securing its next tranche of urgently needed international aid. The country will vote to approve its 2013 budget on Sunday, after Wednesday's tight vote in favor of a 13.5 billion euro austerity package.
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James Butterfill, global equity strategist at Coutts, said concerns about the 'fiscal cliff' and the situation in Europe had been prompting investors to take some risk off the table. He saw a further downside potential in the short-term, but said that could also represent interesting buying opportunities.
"We are sticking to companies with strong balance sheets and non-Europe revenues. In Europe we focus on sectors such as pharmaceuticals and telecoms. We own shares in Vodafone, GlaxoSmithKline and Shire," he said.
The healthcare index, generally seen as a defensive play, topped the gainers list. The index was helped by Novo Nordisk, which jumped 7 percent after an advisory panel to the U.S. Food and Drug Administration late on Thursday voted to recommend approval of its long-acting insulin degludec. Volumes in Novo Nordisk were 300 percent of its 90-day daily average by midday trade.