The pan-European STOXX 600 index rose 0.6% to a record high of 468.22 points, extending its record-setting run to a third day.
Technology stocks were the best performers for the day, surging 1.9% to levels last seen during the dot-com bubble.
Recent buying into the sector has been driven by a rise in cases of the Delta coronavirus variant in Europe, given technology's resilience to disruptions caused by the virus.
Strong second-quarter earnings also pointed towards improving economic conditions, as COVID-19 vaccinations picked up pace across the continent.
Analysts now expect STOXX 600 companies to post a record 139.6% jump in second-quarter profits versus a year ago, according to Refinitiv IBES data.
Dutch chemicals firm IMCD and satellite maker SES were the top performers on the STOXX 600, rising 10.5% and 9.9%, respectively, on strong results.
Coffee company JDE Peet's jumped 2.4% after reporting a better-than-expected operating profit for the first half of 2021.
"Earnings are coming out really strong and that is giving equity investors some comfort," said Andrea Cicione, head of strategy at TS Lombard.
"The other thing that could give investors a rush of bullishness could be the fact that, if you look at the UK, new cases of COVID-19 are falling quite sharply. That gives you a hope that the same should happen in rest of Europe as well."
Graphic: European earnings growth vs world stocks,
A survey showed euro zone business activity raced ahead in July, expanding at its fastest pace in 15 years, as the lifting of more restrictions and an accelerated vaccine drive injected life into the bloc's dominant service industry.
However, supply chain disruptions and labour shortages meant input prices surged at the fastest rate in more than two decades.
Germany's Commerzbank fell 5.8% and was among the worst performers on the STOXX 600, after it swung to a second-quarter loss following a write-off to end an outsourcing project and as the lender undergoes a major restructuring.
Siemens Energy rose more than 2% as it cranked up the pressure on its Spanish-listed wind turbine division Siemens Gamesa after it was forced to slash its profit outlook because of the unit.
Swiss drugmaker Roche inched up 0.4% after Bloomberg reported that SoftBank had built a $5 billion stake in the company.
(Reporting by Sruthi Shankar and Ambar Warrick in Bengaluru; Editing by Kirsten Donovan, Sriraj Kalluvila, Subhranshu Sahu and Paul Simao)
By Sruthi Shankar and Ambar Warrick