The pan-European STOXX 600 index closed 0.2% higher after see-sawing through the session. Trading globally was subdued with U.S. markets closed for Martin Luther King Day.
The German DAX rose 0.4%, boosted by a 4.8% jump in Adidas, while UK's FTSE 100 slipped 0.2% and France's CAC 40 rose just 0.1%.
Luxury stocks including Richemont and LVMH were among the top boosts to the STOXX 600 after bullish brokerage calls.
European bourses took little cheer from data showing a better-than-expected quarterly rebound in China's economy as investors feared that tight coronavirus restrictions and potential challenges to vaccine supplies could dent European economic growth in the first quarter.
"Given how far stocks have come since the end of October some hesitancy about the next steps is understandable - much of the good news that may be imparted by earnings season has already been factored in," Chris Beauchamp, chief market analyst at IG, said in a note.
European earnings season will kick into high gear in the coming weeks, with analysts predicting a 26.3% drop in fourth-quarter profit for companies listed on the STOXX 600, as per Refinitiv I/B/E/S estimates.
Investors also kept an eye on political developments in Rome as Prime Minister Giuseppe Conte faces two days of parliamentary votes that will decide if his fragile coalition can cling to power.
Attention is especially focused on the 321-seat Senate, where Conte looks certain to fall short of an absolute majority.
However, Italian stocks outperformed as shares in Stellantis jumped 7.6% in their first day of trading on the completion of the $52 billion merger between Fiat Chrysler and PSA. Its shares rose 6.9% in Paris markets.
M&A also drove big swings in stocks.
Carrefour slid 6.9% after a possible takeover for 16.2 billion euro ($19.6 billion) by Canadian rival Alimentation Couche-Tard unravelled over the weekend.
The stock erased almost all its gains since the deal was announced last week, with the French government opposing the deal, citing food security concerns.
French waste and water management company Suez, which is fighting a takeover approach from arch-rival Veolia, rose 3.2% after it said it had received an alternative proposal from investment firms Ardian and Global Infrastructure Partners.
Shares in Veolia fell 1.8%.
Finland's Tikkurila surged 16.5% after Dutch paints and coatings maker Akzo Nobel entered the race to buy its rival with an offer 13% higher than a bid from U.S. rival PPG Industries.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Andrew Heavens)
By Sruthi Shankar