- The pan-European STOXX 600 index rallied 1.1pc to hit a record high of 461.75, and marked a 1.5pc weekly rise - its biggest weekly gain since early May.
European stocks closed at all-time highs on Friday as optimism about the earnings season and the European Central Bank's pledge of continued monetary support outweighed risks of a resurgence in COVID-19 cases.
The pan-European STOXX 600 index rallied 1.1pc to hit a record high of 461.75, and marked a 1.5pc weekly rise - its biggest weekly gain since early May.
Automakers were the top gainers, up 2.5pc.
Mercedes-Benz maker Daimler gained 5.5pc after Kepler Cheuvreux upgraded its stock to "buy", saying its growth is not properly reflected in the share price.
French car parts maker Valeo jumped 6pc after it posted higher first-half sales and profit, and said it expected the shortage of key technology chips to ease.
Peers Faurecia and Continental AG rose more than 3pc each.
A bout of selling hit financial markets on Monday as investors grew nervous about the fast-spreading Delta variant of COVID-19 hampering a global economic recovery.
However, strong earnings reports and the ECB's commitment keep interest rates at record lows for even longer pushed the benchmark STOXX 600 higher every day since then.
"The Monday selloff seems like a moment of brief panic, and ... was enough, it appears, to reset sentiment and activity and prompt a resurgence of bullish momentum. Central bank(s) have done their bit to allay fears, most notably the ECB this week," said Chris Beauchamp, chief market analyst at online trader IG.
The focus next week will be on the U.S. Federal Reserve's two-day meeting. Chair Jerome Powell's dovish stance so far has helped markets stay on an upward trajectory.
Rafale jets maker Dassault Aviation climbed 4.5pc on reporting higher sales and profits in the first half, while UK's Vodafone rose 2.4pc after a service revenue beat.
Chip equipment maker ASML hit a fresh record high as strong earnings forecast earlier this week prompted brokerages to hike their price target.
"We believe that European markets will benefit from the growth recovery in the second half of the year," said Esty Dwek, head of global market strategy at Natixis Investment Managers.
Euro zone business activity expanded at its fastest monthly pace in over two decades in July, IHS Markit's flash survey showed, but fears of another wave of infections hit business confidence.
German Purchasing Managers' Index (PMI) hit its highest level in nearly a quarter of a century, creating inflationary bottlenecks.
Danske Bank slid 4.3pc on dismal return on equity declined in the first quarter, while Norwegian solar energy company Scatec slumped 16.2pc after a core profit miss.