The pan-European STOXX 600 index rose 0.7% to close at a one-month high, ending the week with a 2.6% gain after a sharp rebound in risk appetite in the past two sessions.
Banks were the top boost to the index, up 1.8% after forecast-beating quarterly results from Wall Street's biggest lenders on an economic rebound and deals bonanza.
European banks recovered all their pandemic losses to trade at pre-pandemic levels on Friday, while U.S. banks have surged to record highs recently.
Retailers, oil & gas and travel all rose between 1.6% and 2%.
"A renewed focus on the bottom-up news has helped global equities over the last couple of sessions, and results from the U.S. banking sector delivered another significant boost to indices overnight," said Peel Hunt analyst Ian Williams.
Graphic: PE ratio of U.S. vs euro zone banks
European earnings kick into high gear in the next few weeks, with analysts expecting a near 47% jump in third-quarter profit for companies listed on STOXX 600, as per Refinitiv IBES data. Energy and industrial companies are forecast to provide the biggest boost to earnings performance.
Europe's inflation upswing is still seen as temporary and there are no signs yet that the recent surge is becoming embedded in wages, European Central Bank President Christine Lagarde said on Thursday.
Investors have fretted over rising inflation caused by a global energy crisis, supply-chain bottlenecks and labour shortages slowing a corporate profit rebound from the pandemic shock.
"Slowing China growth and global inflation concerns could bring headwinds to risk assets," Citi analyst Aaron Lui said in a note. "Global equities are likely to be under pressure in coming months."
UK-listed shares of Rio Tinto fell 1.4% after the Australian miner cut its 2021 iron ore shipments forecast, citing a tight labour market, while Swiss banking software firm Temenos tumbled 13.7% after its results.
German fashion retailer Hugo Boss climbed 1% after it raised its outlook for the current year after third-quarter earnings rebounded on the back of strong demand in Europe and the Americas.
French cloud computing services company OVHCloud rose 8.7% in its Paris stock market debut.
At the bottom of the STOXX 600 was Global education group Pearson, slumping 15% after it said enrolments at community colleges in the United States had been hit by a recent surge in COVID-19 cases.
(Reporting by Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Sriraj Kalluvila, William Maclean)
By Sruthi Shankar