BMW was a positive feature after the German luxury car-maker said earnings in its automobiles segment rose year-on-year. At 1225 GMT, the Euro top 300 index was up 1.11 per cent, while the narrower Euro Stoxx 50 index had gained 1.14 per cent.
US equity index futures suggested stocks were headed for a firmer open on Wall Street. March futures for the S&P 500 Index were up 0.25 per cent while futures for the Nasdaq 100 March contract added 0.74 per cent.
"We are still optimistic on equities for the year, based on our forecasts of a European economic recovery in the second half," said Mr Corne Biemans, a global portfolio manager for Fortis Obam NV, based in Utrecht.
"The IFO survey this morning is partial evidence that the economy is starting to bottom out now," said Mr Biemans, who helps manage one of the biggest global equity funds in the Netherlands of about 2.5 billion euros.
Germany’s key IFO economic barometer climbed to a better-than-expected 86.3 points in January. "We still need to see a convincing recovery in corporate earnings but investors have priced most of the bad news into shares already," said Mr Biemans.
The heavily-weighted energy and banking sectors supported markets as they are viewed as groups that outperform in a growing economy. Merrill Lynch increased its "overweight" stance earlier on Monday for the banking sector. Michael Harnett, director of European Equity Strategy at Merrill, said the upgrade on banks was based on expectations that interest rates will not rise as sharply as expected, on valuation and healthy earnings.
The oil sector was boosted by a buoyant crude price which extended Friday’s gains. The DJ Stoxx energy sector climbed 2.1 per cent, led by TotalFina Elf up 2.50 per cent and Shell 1.57 per cent firmer.
Britain’s BP gained 2.5 per cent after Goldman Sachs raised its rating on the stock to "recommended list" from "market outperformer". The auto sector motored ahead, with BMW in pole position after the German luxury car-maker said 2001 operating profit in its automobiles segment beat the record 2.38 billion euros posted in 2000.
Elsewhere in the sector DaimlerChrysler added 1.59 per cent and Porsche climbed 1.26 per cent. There was some divergence in the technology group. The world’s largest handset maker Nokia was up 2.4 per cent as investors continued to warm to its strong fourth quarter results posted last week. In stark contrast, its Scandinavian peer Ericsson fell 1.6 per cent after its bleak near-term outlook for its systems division delivered on Friday rattled investors. The investment banks HSBC and Commerzbank both downgraded their recommendations on Ericsson.
"The outlook for the telecom equipment group remains difficult as demand in handsets awaits the stimulus of new technology and cash-strapped telecom carries cut capex on equipment," said Mr Biemans. After opening gains, shares in ARM Holdings eased 5.82 per cent. The UK chip designer posted
better-than-anticipated quarterly results.