[LONDON] US President Donald Trump's decision to delay an increase in tariffs on Chinese goods drove European shares to their highest since October with carmakers, most sensitive to the threat of a global trade war, leading the rally.
The pan-European Stoxx 600 closed up 0.3 per cent and Germany's trade-sensitive DAX rose 0.4 per cent.
Italy's FTSE MIB outperformed the market, climbing 0.9 per cent as government bonds jumped after Fitch affirmed the country's BBB credit rating.
Mr Trump said on Sunday he would delay the March 1 deadline for a tariff increase after "productive" trade talks and that he and Chinese President Xi Jinping would meet to seal an agreement if progress continued.
Auto shares jumped 2.1 per cent to their highest since early November as the tariff reprieve triggered relief for companies most at risk from slower global trade.
Car-parts makers Hella, Faurecia and Valeo were the top performers, up 3.2 to 4.3 per cent.
Some investors remained cautious, though.
"I believe the easiest part is done," said Stephane Dutu, fundamental analyst at Unigestion in Geneva.
"I believe Mr Trump has oversold the positive aspects of the discussions ... the overall deal will be less impressive than what the Chinese and especially Mr Trump are saying about it."
Disappointing results drove some significant declines. Shares in Bank of Ireland dropped 3.1 per cent after it cut its outlook for 2019 and reported a weaker fourth-quarter net interest margin (NIM).
"A weaker Q4 NIM and a lower outlook for 2019 weigh on near-term forecasts, while guided regulatory capital consumption is higher than anticipated," wrote Davy Research analysts.
Covestro shares fell 3.2 per cent after the German chemicals group said its 2019 core earnings may fall as low as half of last year's level.
Overall, fourth-quarter earnings have been disappointing, and analysts have been steadily cutting their expectations for European earnings growth.
M&A was also a driver: French healthcare company Ipsen fell 6.5 per cent after agreeing to buy US peer Clementia Pharmaceuticals in a deal worth up to US$1.31 billion.
PostNL surged 8.9 per cent, set for its best day in more than two years, after saying it planned to buy its main rival Sandd for an estimated 130 million euros.
Chipmaker AMS climbed 5.2 per cent to the top of the Stoxx after it introduced a new component for mobile 3D sensing applications.