London's FTSE 100 jumped 2.1pc in broad-based gains as investors took Prime Minister Boris Johnson's victory in last week's election as an opportunity to buy back into a market that has underperformed on concerns over Brexit.
Shares of big dollar earners such as British American Tobacco, Glencore and BHP rose between 3pc and 5pc, while banks exposed to Brexit uncertainties including Royal Bank of Scotland and Barclays gained about 4pc.
The unwinding of bearish bets came even as the pound, whose gains tend to weigh on the exporter-heavy FTSE 100, extended its rise to above 1.33 per dollar.
"We are witnessing a realignment of British politics and investment," said Steven Holden, CEO of Copley Fund Research, wrote in a note to clients. "Down in the dumps and forgotten British brands are suddenly positioned to ride a wave of newfound confidence."
Gains for London, along with general optimism over the direction of the U.S.-China trade deal, drove the pan-European STOXX 600 index to a record high.
The index was up 1.10pc at 416.56, surpassing the previous high hit in April 2015.
Trade-sensitive miners were the top gainers after U.S. Trade Representative Robert Lighthizer said over the weekend that a "phase one" U.S.-China trade deal will nearly double U.S. exports to China over the next two years and is "totally done".
Germany's DAX lagged its European peers, however, with automakers such as Volkswagen and Daimler weaker.
Markit's Purchasing Managers' index released earlier showed German private sector activity shrank for the fourth month running in December as a downturn in manufacturing offset services sector growth.
Overall, the numbers for the euro one and the United Kingdom were lackluster, but investors chose to focus on the de-escalation in trade and Brexit worries - two main factors that have weighed on global markets this year.
Among individual movers, Swedish appliance maker Electrolux AB slumped 11.3pc after warning its North American business would take a bigger-than-expected hit, partly due to costs from its move into a new plant in South Carolina.
Tullow Oil tumbled 12pc after S&P Global downgraded its long-term credit rating, days after the company's chief executive officer stepped down and it scrapped its dividend.