The pan-European STOXX 600 index <.STOXX> rose 0.8% on broad-based gains, with the STOXX 50 index <.STOXX50> of Europe's biggest stocks rising 1.3% to its highest level since February 2018 before closing 0.7% higher.
At a meeting on the sidelines of the G20 summit, President Donald Trump offered concessions to his Chinese counterpart Xi Jinping including no new tariffs and reducing restrictions on tech company Huawei.
From its side, China agreed to make unspecified new purchases of U.S. farm products and restart negotiations after the last round collapsed in May.
Stocks across the globe rose on the news, with the S&P 500 hitting record highs. [.N] [MKTS/GLOB]
In Europe, Frankfurt's trade-sensitive DAX <.GDAXI> rallied 1%, the most among the major European indexes, while the tech index <.SX8P> rose 1.9% as chipmakers were boosted by the Huawei relief.
Infineon, Siltronic, ams, STMicroelectronics and ASM International rose between 3.7% and 5.6%.
The blue-chip Swiss index <.SSMI> gained 0.7% despite stocks being blocked from trading on EU exchanges after talks to resolve a dispute between Brussels and Switzerland collapsed.
"TEMPORARY RELIEF RALLY"
The breakthrough in trade talks helped the STOXX 600 index start the second half of the year on a strong note, after posting its biggest first half yearly gains since 1998 on Friday.
After a sell-off in May that marked its weakest monthly performance in over two years, the main index climbed 4.2% in June on hopes that major central banks would be more accommodating to counter the negative effects of a trade war that has lasted for months.
But analysts warned against excessive optimism given no deadline was set for progress on a deal, and both parties remain at odds over significant parts of an agreement.
"Markets are seeing a temporary relief rally (from the trade truce). But, it needs to be more than that to sustain it, I think," said Edmund Shing, global head of equity derivatives strategy, BNP Paribas
"Even if you don't get a deal, you need to see some progress."
Atlantia fell 3.2% and was among the few decliners on the STOXX 600 as it battled with the ruling 5-Star party over selectively leaking a government report to revoke the group's national toll-road concession that accounts for a third of its core profits.
(Reporting by Amy Caren Daniel and Susan Mathew in Bengaluru and Thyagaraju Adinarayan in London; Editing by Bernard Orr and Andrew Cawthorne)
By Susan Mathew and Amy Caren Daniel