After a hesitant start, the region-wide STOXX 600 index rose 0.2% to hit an all-time high in morning trade.
Oil & gas stocks were the top gainers as BP rose 2.9% after it lifted its dividend and ramped up share buybacks on the back of a surge in quarterly profit to $2.8 billion.
French lender Societe Generale jumped 5.5% after it lifted its profit forecast for the full year, while UK-listed Standard Chartered gained 1.0% after it reported a higher-than-expected first-half profit.
Second-quarter earnings have been strong, with 66% of the more than half of the STOXX 600 companies that have reported so far topping analysts' profit expectations, according to Refinitiv IBES data.
Despite concerns about rising COVID-19 cases globally and higher inflation, European stocks are trading at record levels as investors rotate into the economy-linked cyclical sectors such as financial and industrials with a nascent recovery continuing.
"Momentum stocks currently trade at an exceptionally large discount to both growth stocks and the European broad market," analysts at BCA Research wrote in a note.
They recommend investors "move more aggressively" into industrial equities, which are poised to benefit from the rise in global capex and the excess money supply growth.
However, Asian stocks were mostly lower as the Delta variant spread in key markets and Chinese officials took aim at video game producers once again. [MKTS/GLOB]
Dutch firm Prosus, which has a stake in Chinese tech giant Tencent, fell 5.3%, while other online video gaming companies like Evolution, Ubisoft and Embracer were down between 1.6% and 3%.
The tech sector was among the biggest drags after German chipmaker Infineon Technologies fell 1.5% as it said it was battling extreme tightness in its markets.
BMW slid 3.8% even after raising its profit forecast for 2021 as it said the global chip shortage and rising raw materials prices would hurt its performance in the second half of the year.
On the other hand, carmaker Stellantis climbed 4.4% after it raised its full-year target on its adjusted operating profit margin.
The world's biggest container shipping company, A.P. Moller-Maersk, inched up 1.3% after it lifted its full-year earnings outlook as chaotic conditions in the global supply chain pushed freight rates higher.
Graphic: European stocks
(Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila and Subhranshu Sahu)
By Sruthi Shankar