Moderna became the second drugmaker in a week to report high efficacy for an experimental coronavirus vaccine after Pfizer made a similar announcement on Nov. 9.

"The more companies that can develop a vaccine candidate that can be shown to be effective, the more optimistic investors will be about being able to see a way out of this pandemic and for economic activity, sort of come back to some semblance of normality," said Michael Hewson, chief market analyst at CMC Markets.

The pan-European STOXX 600 ended 1.3% higher with oil stocks leading gains on the back of a 4% jump in oil prices, while banks <.SX7P> rose 3.1%, led by Spanish lender BBVA.

BBVA ended 16% higher and was one of the top three performing stocks on the STOXX 600 index after PNC Financial Services Group said it would buy its U.S. business for $11.6 billion in cash.

The benchmark STOXX 600 has gained nearly 40% from its March lows and is on track for its best month in nearly three decades. But the economic disruption arising out of a spike in coronavirus cases across Europe has led the index to underperform its U.S. peers this year.

European Central Bank Vice President Luis de Guindos asked Euro zone banks on Monday to keep using their capital buffers to absorb losses without holding back credit to the real economy, which, he said, needs time to rebound from a pandemic-induced recession.

"The market has already priced in such vaccine news as there is still a long way for the vaccine to be completely developed and for economies to genuinely recover," said Keith Temperton, a sales trader at Forte Securities.

Data showing that China's factory output rose faster than expected in October and that retail sales surged had helped sentiment earlier in the day.

In company news, Vodafone Group gained 6.7% after it said it was increasingly confident about its full-year performance following a "resilient" first-half, despite underlying momentum being obscured by the impact of COVID-19.

Italy's Nexi jumped 0.5% after it struck its second tie-up in six weeks, agreeing a 7.8 billion euro ($9.2 billion) merger with Nordic rival Nets to create Europe's largest payments group.

(Reporting by Shashank Nayar and Devik Jain in Bengaluru; Editing by Peter Graff and Nick Zieminski)

By Shashank Nayar and Ambar Warrick