Hard-hit airline stocks like British Airways-owner IAG, Ryanair and Lufthansa rose between 9.7% and 10.7%, while cruise operator Carnival Plc jumped 11.4%.

The travel & leisure index surged 6.1% to lead sectoral gains, but still remains the worst performer in Europe this year with a 33% plunge as the coronavirus pandemic brought global travel to a halt.

The pan-European STOXX 600 rose 1.8%, closing just short of levels last seen in early March, while euro zone blue-chips <.STOXX50E> jumped 1.7% to hit their highest level since March 5.

Investors were encouraged by an early-stage study on U.S. biotech firm Moderna Inc's experimental vaccine for COVID-19 that provoked immune responses.

Meanwhile, AstraZeneca jumped 5.2% after a report said positive news on the University of Oxford's potential COVID-19 vaccine that has been licensed to the drugmaker could be announced as soon as Thursday.

"Our central scenario is that a vaccine would be broadly available from the second quarter of next year, or the fourth quarter of this year in our upside scenario," Mark Haefele, chief investment officer of UBS Global Wealth Management, told clients.

"Various potential treatment options are also in the pipeline, raising hopes that societies can cope with the pandemic without full shutdowns."

Expectations were also high among investors heading into an EU summit later this week that leaders will agree on a recovery fund of 750 billion euros for pandemic-hammered economies.

The European Central Bank concludes its policy meeting on Thursday although no major announcements are expected.

Among individual movers, Swedish telecom operator Tele2 AB gained 2.9% as it reaffirmed its 2020 earnings outlook and plans for an extra shareholder payout.

The world's largest fish farmer Mowi ASA jumped 6.8% as harvest volumes beat its own forecast. Shares in peer Salmar rose 2.2%.

The top gainer on the STOXX 600 was Atlantia SpA, which shot up 26.7% after the Italian infrastructure group and its unit Autostrade made the government new offers to settle their long-running dispute.

Semiconductor equipment maker ASML Holding NV declined 3.7% as it reported quarterly profit below estimates, but forecast overall growth for 2020.

Swedish bank SEB AB fell 1.6% after reporting a smaller-than-expected fall in net quarterly profit, but credit loss provisions surged. Handelsbanken AB also dropped 2.6%.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Catherine Evans)

By Sruthi Shankar