European equities scaled fresh two-year highs on Tuesday, boosted by miners, as optimism about economic recovery gained momentum after robust U.S. home price data and comments over growth in top metals consumer China.
A report earlier showed U.S. home prices rose in November, adding further evidence of a housing market recovery there. China's top think tank, meanwhile, lifted its economic growth forecast for 2013 to 8.4 percent from 8.2 percent, with faster expansion seen in the first half of the year.
The FTSEurofirst 300 ended up 0.4 percent at 1,177.79, its highest close since Feb. 18, 2011, taking the rally off its June lows to around 24 percent. Mining stocks ended the day up 1.8 percent.
Fund managers and strategists said that while there was the possibility that equities would level off after such hefty gains, they deemed a significant near-term sell-off as unlikely.
"You will get to the point where that squeeze higher will have absorbed all of the cash that was destined to go into equities and it's at that point markets will be vulnerable - but I don't think we're there yet," said Andrew Cole, a fund manager at Baring Asset Management, which has 32.4 billion pounds ($51 billion) of assets under management.
The Euro STOXX 50 Volatility Index, or VSTOXX, Europe's widely-used measure of stock market risk aversion, hit a near six year closing low on Tuesday, in a strong signal of improving demand for equities.
The VSTOXX, which is based on put and call options on Euro STOXX 50 stocks, fell 2.3 percent to 14.86, its lowest close since early 2007, before the start of the U.S. subprime crisis that triggered the world's biggest economic crisis since the Great Depression.
"After the recent rise we had in European equities it might be time for some kind of consolidation or a pause, (but) we do not expect a big correction... because fundamentals are still supportive, Patrick Moonen, a senior strategist at ING, said.
The advance seen from the miners was spearheaded by a 3 percent rise from Anglo American as investors cheered greater clarity on its troubled Minas Rio iron ore project in Brazil.
European banks came under pressure, with Royal Bank of Scotland off 6 percent after the Wall Street Journal reported that the lender was nearing a $785 million settlement with U.S. and UK authorities over claims some of its employees submitted false Libor rates.
Trading volume in RBS was robust, at 257