- The pound briefly reached 2.5-year peak at $1.3704 before pulling back to $1.3628.
LONDON: European stock markets rallied Monday, boosted by takeover activity, Brexit relief and vaccine-driven economic optimism on the first trading day of 2021.
London's FTSE 100 shares index gained 2.8 percent on the first day since Britain finalised a divorce from the European Union, as dealers noted no signs of the Brexit chaos some had feared.
The pound briefly reached 2.5-year peak at $1.3704 before pulling back to $1.3628.
It gave up around 1.0 percent against the euro to 90.22 pence.
"The latest lockdowns have dampened investor enthusiasm towards the pound, especially as PM Boris Johnson has warned of 'tougher' new measures to control COVID surge across the UK," ThinkMarkets analyst Fawad Razaqzada remarked.
Scotland on Monday announced a nationwide lockdown for the rest of January.
Oil prices were mixed ahead of a virtual meeting between OPEC and its allies to decide February output levels, after coronavirus ravaged demand in 2020.
Bitcoin retreated to $30,600, a day after surging to an all-time pinnacle near $35,000.
"The FTSE 100 is kicking off 2021 in style... With Brexit finally here, there are precious few signs of initial difficulties," said IG analyst Joshua Mahony.
Britain left the EU's single market and customs union late on December 31, ending almost 50 years of integration with the continent.
Customs border checks have returned for the first time in decades, and despite a free-trade deal allowing Britain continued access to Europe's nearly 450 million consumers, queues and disruption from additional paperwork are expected.
Investors are meanwhile hopeful that Covid-19 vaccines -- a first UK patient received the Oxford University/AstraZeneca's jab -- will help offset surging infections and herald a return to normality.
"Markets are being helped by the Oxford-AstraZeneca story as there is a growing feeling that the pharma sector is in a better position to tackle the health crisis," said CMC Markets analyst David Madden.
European stocks were also propelled by merger and acquisition activity.
British betting company Entain, which owns high street chain Ladbrokes, revealed it had turned down a takeover offer worth £8.0 billion ($10.9 billion, 8.9 billion euros) from US casino giant MGM.
The news sent Entain's share price soaring almost 28 percent to 1,449 pence, topping the FTSE 100 risers board.
"Entain Group understandably leads the way after a rejected takeover bid from MGM Resorts highlighted the potential for a new enhanced offer in the near future," added Mahony.
In Paris, shareholders in French automaker PSA almost unanimously approved a merger with US-Italian group Fiat Chrysler, in a deal that will create the world's fourth-largest carmaker by volume.
In early afternoon deals, PSA shares won 3.0 percent to 23.05 euros in Paris, while Fiat shares added 2.7 percent to 15.05 euros in Milan.
Elsewhere, Asian equities mostly bounded higher, and with uncertainty over Brexit and a new US stimulus gone, sights are now on economic recovery.
Investors are also keeping tabs on the US, where Georgia has two runoff elections that will decide which party holds control of the Senate.
Key figures around 1430 GMT -
London - FTSE 100: UP 2.8 percent at 6,641.20 points
Frankfurt - DAX 30: UP 1.2 percent at 13,882.90
Paris - CAC 40: UP 1.8 percent at 5,649.73
EURO STOXX 50: UP 1.4 percent at 3,602.64
New York - Dow: down 0.2 percent at 30,549.00
Tokyo - Nikkei 225: DOWN 0.7 percent at 27,258.38 (close)
Hong Kong - Hang Seng: UP 0.9 percent at 27,472.81 (close)
Shanghai - Composite: UP 0.9 percent at 3,502.96 (close)
Pound/dollar: DOWN at $1.3628 from $1.3672 at 2200 GMT
Euro/pound: UP at 90.22 pence from 89.34 pence
Euro/dollar: UP at $1.2307 from $1.2215
Dollar/yen: DOWN at 103.02 yen from 103.20 yen
West Texas Intermediate: FLAT at $48.56 per barrel
Brent North Sea crude: UP 0.3 percent at $52.08