European stocks extended gains to close sharply higher on Tuesday, as sentiment was lifted by positive trade in the U.S. and strong gains from banks, insurers and retailers.
The pan-European Stoxx 600 finished 2.2 percent up provisionally, despite opening the session in negative territory.
All bourses finished higher, except Athens' stock exchange, which closed 1.1 percent down.
Germany's DAX closed up around 2.2 percent. That was despite the closely watched ZEW survey showing German investor morale fell unexpectedly in May, to 6.4 from 11.2 in April.
SEB was Europe's top stock performer after the French appliance producer announced it had agreed to buy German manufacturer WMF from private equity firm KKR. Shares closed around 10.7 percent higher.
Shares in Bayer rallied on Tuesday, but wobbled in late trade after Reuters reported that Monsanto would reject the German chemical firm's $62 billion bid, citing unnamed sources.
CNBC could not reach Monsanto for comment.
Shares of Unicredit ended nearly 5 percent higher on the expectation the Italian bank would soon formally launch the search for a new chief executive. Other banks in the region also rallied, with BMPS jumping 10.5 percent and Intesa Sanpaolo up over 6 percent.
Europe's best performing stock sector was insurance, closing 3.8 percent up. Old Mutual jumped almost 6 percent after the financial group confirmed it had received multiple approaches from third parties to buy its stake in Old Mutual Asset Management. However, the firm said there was "no certainty" this would lead to any transaction.
In the commodities space, oil prices fluctuated during the session, but showed signs of recovery as traders awaited U.S. stockpiles data. Prices have been weighed down by a strong dollar, and glut concerns as production from top exporters increases. Both Brent and U.S. crude traded below $49 per barrel at Europe's stock market close.
In stocks markets overseas, Asia finished mostly lower, with China and Japan posting solid declines. Meanwhile, U.S. stocks were sharply higher Tuesday, as investors digested the latest domestic data releases.