The pan-European STOXX 600 closed up 0.7% at a record high of 478.87 points, boosted by a 1.4% jump in bank stocks, as euro zone bond yields surged on expectations of rate hikes by the European Central Bank (ECB) next year. [GVD/EUR]

The bank sector touched its highest level in more than two years, and was the best performer for the day.

The bank-heavy Italian and Spanish indexes rose 1.2% and 1.4%, respectively, while the German DAX added 0.8%.

"There's a lot of earnings optimism, the feel-good factor of companies bouncing back," said David Madden, markets analyst at Equiti Capital.

"We spent so much time being afraid of the tapering in September and early October. I think people are now going to see tapering as a positive sign, that you can completely come full circle."

The STOXX 600 in October recorded its best month in seven with a 4.6% rise, driven by a slew of strong earnings. Refinitiv data last week showed that third quarter earnings in the STOXX 600 are expected to jump 52% from last year.

Investors are now awaiting signals from the U.S. Federal Reserve this week, particularly on when the bank intends to begin tapering pandemic-era stimulus measures.

Among individual stocks, shares in German conglomerate Thyssenkrupp and steelmaker Salzgitter rose 2.4% and 1.9%, respectively, after the U.S. and the European Union ended a dispute over steel and aluminium tariffs.

French drugmaker Sanofi gained 2.2% after HSBC upgraded the stock to "buy".

Volkswagen inched up 0.4% after saying its Skoda Auto would resume production on Sunday following a two-week outage caused by the chip crisis.

Britain's FTSE 100 rose 0.6%. Barclays dipped 1.6% after it said Chief Executive Officer Jes Staley will stand down following regulators' investigations into his ties with convicted sex offender Jeffrey Epstein.

Pandora fell 1.2% after an earnings update from the world's largest jewellery maker showed weak sales growth at its own stores in the third quarter.

Budget airline operator Ryanair rose 1.2% after it reported its first quarterly profit since before COVID-19. But gains in the stock were stifled as the firm downgraded its annual forecast to a loss.

(Reporting by Anisha Sircar in Bengaluru; Editing by Subhranshu Sahu, Sriraj Kalluvila and Andrew Heavens)

By Anisha Sircar and Ambar Warrick