The pan-European STOXX 600 index rose 0.2% to end just shy of its record high hit last week, with the travel and leisure index leading gains, while technology stocks rose 0.6%.
The German DAX hit a record high and Italy's FTSE MIB added 0.1%.
Inflation worries due to gains in commodity prices and supply chain issues have raised fears of central banks dialling back unprecedented fiscal and monetary policy support.
"Should we have inflation globally, then cyclical stocks see better performance normally than growth stocks," UniCredit strategist Christian Stocker said.
"The weight of cyclical stocks is much higher in Europe and from a relative point of view, it is an advantage for European equities."
UK stocks cheered data that showed Britain's unemployment rate fell more than expected to 4.8% in the first quarter when the country was under a tight lockdown, while hiring rose further in April. [.L]
"The UK jobs market is mounting a recovery, after the hardship caused by the pandemic," said Hugh Shields, financial trader at Spreadex.
"With the latest lockdown restrictions being eased, and further easing on the 21st of June, one can only presume this number will soon return to pre-COVID 19 rates or better."
As the earnings season draws to a close, analysts expect the profits of STOXX 600 companies to jump 90.2% in the first quarter and 93.4% in the second, as per Refinitiv IBES data.
The world's biggest maker of hearing aids, Sonova Holding, surged 11.5% after predicting strong growth this year due to a market recovery and new products.
Winston cigarettes maker Imperial Brands rose 1.5% after it reiterated its full-year outlook.
Telecoms took a hit as the UK mobile operator Vodafone fell 8.9% after reporting a 1.2% drop in full-year adjusted earnings, citing the effect of COVID-19 on roaming revenue and handset sales.
French telecoms group Iliad slumped 10.2% after saying it would revise down a key cash flow target as it steps up spending on 5G networks.
(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Arun Koyyur and Kevin Liffey)
By Sruthi Shankar and Shreyashi Sanyal