The pan-European STOXX 600 closed up 0.5%, overcoming early losses and extending a recovery into a second consecutive session.
Travel stocks were the best performing European sector, rising 2.9% as airline shares jumped after Ryanair's optimistic take on travel trends in 2022.
Shares of low-cost carrier rose 4.2%.
Broader European equities benefited as German bond yields dropped back below 0%, retreating from a series of strong gains this week. [GVD/EUR]
Utility and technology stocks rose 1.7% and 1.5%, respectively. The two sectors usually tend to underperfrom in high-rate environments, and have fallen substantially this year.
The broad STOXX 600 index has struggled for direction this week as investors fretted over soaring inflation and eventual policy tightening this year. Positive earnings updates and commodity-linked gains, however, aided sentiment.
Data showed German producer prices rose at a record rate in December, driven by higher energy prices.
Still, European Central Bank head Christine Lagarde said inflation in the region would ease gradually over the year, given that its main drivers- surging energy prices and supply bottlenecks- were expected to subside.
"Investors are considering the best port of call in a world where money stops sloshing around, and growth stock darlings begin to look less attractive," said AJ Bell financial analyst Danni Hewson.
"With the price of oil and gas so high, and consumers under pressure, the threat of even higher prices will be making great big clanging noises in investors' ears," Hewson said.
Energy stocks retreated from near two-year highs as crude oil prices dipped after a month-long rally. [O/R]
Among other stocks, Unilever fell 0.5% after it said it would not raise its 50 billion pound ($68 billion) offer to buy GlaxoSmithKline's consumer healthcare business, which GSK previously rejected.
GSK shares fell 1.8%.
Deliveroo rose 1.4% after reporting a 36% year-on-year jump in the gross value of orders on its platform in the fourth quarter, and as the food delivery company hit the top of its guidance range with a 70% rise for the year.
Metal-cutting tools and mining gear maker Sandvik advanced 1.3% after posting quarterly earnings just above analysts' expectations and noting strong demand.
German sportswear maker Puma rose 1.2% after posting stronger-than-expected preliminary quarterly sales and core profit.
(Reporting by Anisha Sircar and Ambar Warrick in Bengaluru; editing by Uttaresh.V, Ramakrishnan M. and Tomasz Janowski)
By Anisha Sircar and Ambar Warrick