The pan-European STOXX 600 closed 0.3% higher at 456.37 points, after data showed euro zone economic sentiment hit a 21-year high in June as a steady vaccination programme saw several economies reopen.
While the data did not factor in the new Delta variant of the coronavirus, the improving mood saw investors pile into sectors most likely to benefit from a recovery.
Chemical stocks rose 0.9%, while automobile and financial services were among the best performers.
"Only in May 2000, at the height of the dotcom boom, did we see more positive economic sentiment than now... The reopening of economies is causing a synchronised boost to both production and optimism about the months ahead among industry, services and consumers," ING analysts wrote in a note.
German shares were the best performers, adding 0.9%. Adidas rose 2.5% to a record high after the sportswear maker said it will launch a new share buyback programme worth up to 550 million euros ($654 million).
German inflation also eased in June, quelling some fears over increasing price pressures. But the reading remained above the central bank's target.
Optimism around a steady economic recovery has put the European benchmark on course for its fifth straight month of gains, but it has recently struggled to break above its all-time closing high on June 16 on concerns over the Delta variant of the coronavirus.
Travel-related European stocks fell 0.2% after their worst session in more than a month, following reports of a potential ban on UK travellers in Germany. Spain also tightened travel rules for British tourists.
"Concerns (are) growing that the race between the vaccine and the virus is being lost," said Michael Hewson, chief market analyst at CMC Markets UK.
Among individual stocks, French electrical parts supplier Rexel jumped 4.3% after it lifted its 2021 sales forecast.
Knorr Bremse fell more than 12% to the bottom of the STOXX 600, after Reuters reported the German brakes maker, along with French auto plastic suppliers Plastic Omnium and Faurecia were interested in buying German automotive lighting group Hella.
Hella surged nearly 4% on the news.
(Reporting by Sagarika Jaisinghani and Ambar Warrick in Bengaluru; Editing by Shounak Dasgupta and Alexander Smith)
By Sagarika Jaisinghani and Ambar Warrick