The pan-European STOXX 600 index gained 0.5%, trading less than a percent below its pre-pandemic peak.

Bank stocks jumped 2.0%, rebounding after a 1% drop on Monday, as U.S. and European government bond yields rose on hopes of stronger economic growth and inflation ahead. [GVD/EUR]

Swiss lender Credit Suisse gained 1.5%, following its near 14% slide in the previous session as it warned of "highly significant and material" losses after the fund, named by sources as Archegos Capital, defaulted on margin calls.

"Though Archegos uncertainties are still hanging over the markets, European investors felt settled enough to push the region's indices higher," Connor Campbell, a financial analyst at SpreadEx, said in a note.

The German DAX rose 0.5% to scale a record high, boosted by automakers and a 2.0% rise in Deutsche Bank.

"If all goes well in the next 48 hours, it (the DAX) could close out March above 15,000," said Campbell.

The benchmark STOXX 600 is on course to end the first quarter with a near 8% gain - its fourth straight quarterly rise - as global growth optimism overshadowed sluggish vaccination drives in the euro zone and new corornavirus-related lockdowns.

Economically sensitive cyclical sectors such as autos, banks and travel & leisure have been the top performers this quarter as investors snapped up the cheap stocks on hopes that re-opening of economies will spur growth in the sectors.

Data showed French consumer confidence rose unexpectedly in March despite new restrictions on large parts of the country and the prospect of more curbs on the way.

Italian luxury puffer jacket maker Moncler rose 2.3% and Swiss watch group Swatch gained 2.5% after Deutsche Bank upgraded their stocks to "buy".

Spanish mobile phone mast operator Cellnex slipped 1.9% after it launched a 7 billion euro ($8.23 billion) capital raise.

Defensive sectors such as utilities and healthcare fell, while rising yields weighed on highly valued technology stocks.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shailesh Kuber and Subhranshu Sahu)

By Sruthi Shankar