Tariff-exposed European miners <.SXPP> and auto and parts makers <.SXAPP> shot up almost 3%, taking the pan-European STOXX 600 index <.STOXX> up 1% to its highest since January 2018.
French stocks <.FCHI> scaled 12 year highs, while German shares <.GDAXI> ended at levels not seen since June last year. Among other sectors, a jump in oil prices saw energy shares <.SXEP> post their best day in seven weeks, while euro zone bank stocks <.SX7E> jumped 2.5%.
U.S. Commerce Secretary Wilbur Ross said on Sunday licences for U.S. companies to sell components to China's Huawei Technologies Co would come "very shortly", adding there was no reason a trade deal could not be on track to be signed this month.
Analysts also pointed to a looming decision on U.S. tariffs on European goods due next week.
"European stocks are higher across the board on expectations that we may see the Trump administration delay fresh tariffs that were suppose to hit EU carmakers," said Edward Moya, chief market strategist at OANDA.
Auto stocks <.SXAP> rallied 2.9%, powered also by reports that Fiat Chrysler and Peugeot owner PSA aimed to sign a final merger agreement as early as next month.
"Expectations are growing that we could see the Europeans have a much easier time negotiating with the Trump administration than what we have seen so far with the Chinese," he said, adding that optimism also stemmed from hopes that new ECB chief Christine Lagarde will deliver fiscal stimulus.
Lagarde is due to deliver her first speech as president of the European Central Bank at an event later in the day. A survey showing rebounding euro zone investor morale in November also added to the positivity.
Europe's main index had touched its highest since an all-time peak hit in April 2015 during the session to mark a strong start to the week after four weeks of gains.
Ryanair rose 8.5% to a one-year high after the budget carrier beat first-half profit expectations. Its shares helped Irish stocks <.ISEQ> jump 1.8%, the most among regional indexes.
Siemens Healthineers jumped 9.5% to a record high after it said it expected strong growth to continue next year following a better-than-expected fourth quarter.
Expectations had been low for third-quarter earnings from European companies, and most firms have surpassed estimates four weeks into the reporting season.
London-listed GVC was the worst performer on STOXX 600, tumbling 10.5%, as British gambling companies were hit after a cross-party group of lawmakers called for a raft of measures to overhaul online casinos and protect vulnerable people.
Meanwhile, investors shrugged off weak manufacturing data from major European regions, even as the factory activity in the bloc's powerhouse, Germany, remained in recession in October.
(Reporting by Susan mathew and Shreyashi Sanyal in Bengaluru; Editing by Patrick Graham, Anil D'Silva and Alison Williams)
By Susan Mathew