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European stocks and the euro rallied on Tuesday, propelled by news of soaring investor sentiment in eurozone powerhouse Germany.
In afternoon trading, London's FTSE 100 index of top companies rose 0.64 percent to 6,358.67 points, Frankfurt's DAX gained 0.1.31 percent to 7,728.88 points and in Paris the CAC 40 advanced 1.80 percent to 3,733.04 points.
In foreign exchange activity, the European single currency dipped to $1.3346 from $1.3351 late in New York on Monday.
The dollar dipped to 93.48 yen from 93.96 yen, while the euro dropped to 124.77 yen from 125.45 yen.
Gold prices meanwhile firmed to $1,613.50 an ounce from $1,610.75 on the London Bullion Market.
Investor sentiment in Germany surged unexpectedly to the highest level for three years in February, as the outlook for Europe's top economy brightens, a new survey found on Tuesday.
The widely watched investor confidence index calculated by the ZEW economic institute soared to 48.2 points in February from 31.5 points in January. That was its highest level since April 2010.
"That ZEW number has absolutely smashed expectations, and the euro can be expected to rally hard as a result," said analyst Fawad Razaqzada at trading group GFT Markets.
"This really was not expected by the market so after what has been a rather moribund start to the month we could see some real life coming into stocks.
"But there is some concern that the ECB is not going to let the euro appreciate significantly, so there is a chance that the gains could well be short-lived, at least as far as the single currency is concerned."
The reading beat market expectations for a much more modest increase to just 35 points this month, stoking hopes that the eurozone could edge towards economic recovery this year.
"This is just the latest in a long list of surveys out of the eurozone which suggest 2013 is going to be the year when the region bottoms out and begins the move back towards recovery," said Alpari trader Craig Erlam.
However, he added: "We should not get too carried away with the data though, while these surveys are positive, we are yet to see any hard data to confirm that worst is actually behind us.
"Once this starts to make its way out, I think we could see the start of the next phase of the equity rally, not to mention the euro's ascent back towards $1.40."
With US markets closed for the Presidents' Day public holiday on Monday, there were no drivers from New York.
-- Danone and Intercontinental --
On the company news front, Danone shares rallied 4.92 percent to 52.66 euros in Paris after the French food group said it would axe about 900 jobs or ten percent of its managerial staff in Europe and posted flat 2012 net profits.
Danone added that the job cuts would be achieved by relocation within the company and through voluntary departures.
In London, InterContinental Hotels Group shares fell 2.61 percent to 1,937.00 pence, despite news that annual profits jumped by almost a fifth, aided by strong expansion in China and the US.
In earlier Asian deals, markets traded mostly lower on Tuesday as Tokyo slipped following an uptick in the yen while Chinese shares fell on fears Beijing may act to rein in soaring property prices.
Tokyo's benchmark Nikkei 225 lost 0.31 percent on profit-taking and as the yen rose after Japan's finance minister said the central bank's independence was safe for now.
Hong Kong meanwhile slid 1.02 percent and Shanghai dived 1.25 percent, led by falls in property stocks amid fears Beijing may tighten regulations in the sector to try to control home prices.
US stocks inched higher in opening trade on Tuesday, with the Dow Jones Industrial Average was moving up 0.04 percent to 13,987.21 points after five minutes of trade.
The broad-based S&P 500 rose 0.13 percent to 1,521.74 points, while the tech-rich Nasdaq Composite increased 0.17 percent to 3,197.46 points.