Automobile stocks, which are highly sensitive to Chinese demand and industrial output, surged 2pc, led by French car parts group Faurecia after reporting a rise in annual profits and sales.
Given that several European companies, particularly the automobile sector, depend on China as part of their supply chain, local markets are likely to take any fresh stimulus measures as a positive.
China cut interest rates and flagged possible tax cuts as it struggles to limit the economic impact from the coronavirus outbreak, which has killed more than 1,700 people in the country.
"The fact that China keeps signalling that they're ready to somewhat bubblewrap the economy by pumping in stimulus - that's what's keeping markets in the green today," said Connor Campbell, analyst at financial spread better Spreadex.
The pan-European STOXX 600 index rose 0.2pc by 0906 GMT, having touched a record high of 432.48 earlier in the day. Market activity is expected to be light through the rest of the day on account of a U.S. holiday.
The automaker-heavy German stock index also touched a record high.
"This week is interesting because we've got manufacturing PMIs (on Friday), I think it will give an idea of some impact on supply chains from the coronavirus," Spreadex's Campbell added.
The resources and oil and gas sectors were also among the best performing subindexes for the day, given their heavy export exposure to China. Both sectors have also taken some support from recent weakness in the euro and the pound.
Among individual movers, London-listed Jupiter Fund Management topped the STOXX 600 after it agreed to buy Merian Global Investors in a deal that will make Jupiter Britain's second-largest retail funds provider.
German herbicide providers Bayer AG and BASF SE fell 2.3pc and 1.1pc, respectively, after a U.S. peach grower was awarded $265 million in a lawsuit against the two.
French aircraft maker Airbus SE fell 1.7pc after the U.S. on Friday said it would lift tariffs on aircraft imported from the EU amid a nearly 16-year transatlantic dispute over aircraft subsidies.