At the close of European trade, the EURO STOXX 50 advanced 0.86%, France’s CAC 40 rose 0.64%, while Germany’s DAX 30 climbed 0.84%.
Market sentiment found support after the Financial Times reported earlier that European Union authorities are working behind the scenes to pave the way for a new Spanish rescue program and unlimited bond buying by the European Central Bank, by helping Madrid craft an economic reform program that will be unveiled next week.
Talks between the Spanish government and the European Commission were said to be focusing on measures that would be demanded by international lenders as part of a new rescue program, ensuring they are in place before a bailout is formally requested.
Financial stocks pushed higher following the news, as shares in German lenders Deutsche Bank and Commerzbank rose 1.11% and 0.39%, while France's BNP Paribas and Societe Generale climbed 0.93% and 0.55% respectively.
Peripheral lenders contributed to gains, with Italian banks Intesa Sanpaolo and Unicredit surging 2.04% and 1.40%, while Spain's Banco Santander and BBVA advanced 1.06% and 1.17%.
Elsewhere, insururers also remained sharply higher. Italian group Assicurazioni Generali jumped 1.36%, while France-based Axa rallied 1.54% and Germany's Allianz gained 1.66%.
In London, FTSE 100 eased 0.07%, but remained supported by sharp gains in financial and mining stocks.
The Royal Bank of Scotland led U.K. lenders higher, with shares surging 2.16%, while Lloyds Banking advanced 1.65% and Barclays inched up 0.04%. HSBC Holdings underperformed on the other hand, as shares fell 0.26%
Meanwhile, mining group Vedanta Resources held gains, with shares up 2.47%, while BHP Billiton added 0.33% and Rio Tinto turned lower, dropping 0.85%.
Also on the upside, Vodafone rallied 1.31% following reports the phone company is open to discuss tax issues and that it will explore a new option to pay the government if interest and penalty are waived off.
Separately, Barclays raised its price target on the stock.
In the U.S., equity markets followed higher with the Dow up 0.27%, the broad based S&P 500 higher by 0.29% and the tech heavy Nasdaq up 0.46.