Miners, heavily reliant on demand from China, were the top gainers by some margin, ahead 1.7 percent. "The market today found unexpected support from China where the new administration made a series of pro-growth announcements, leading the Chinese index to have its strongest day in many months," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million of assets.
Demand at Spain's latest bond sale was lacklustre, however, and when fresh evidence of political stalemate in the US "fiscal cliff" talks emerged, the market trimmed gains. "There's no agreement. That is going to filter through (to) cause negative sentiment and a bit of selling," Angus Campbell, head of market analysis at Capital Spreads, said of the US budget deadlock.
The market's advance was also held in check by weak services data in Europe, with little sign the euro zone region will emerge from recession soon, and a survey reading that showed a recovery in the UK's dominant services has stalled. Poor demand from Europe was reflected in British software company Sage Group's full-year results, with its shares off 3.5 percent, the second-top FTSEurofirst 300 fallers.
The company, whose software is used by more than 6 million small businesses to run payroll and accounts, said tough conditions for small businesses in France and Spain would drag on growth in 2013. But some were positive. In a note on European stocks, US investment bank Citi remained bullish on prospects for equities in Europe in 2013, recommending that investors choose companies with defensive growth characteristics and which are seen as "world champions" in their sector.
The world's No 3 retailer Tesco climbed 3.3 percent after announcing it is set to end its five-year attempt to crack the cut-throat US grocery market and focus instead on its struggling home business and faster-growing emerging markets. "Despite a weak outlook in terms of macro growth (in Europe), we can reasonably expect (price/earnings (P/E)) multiple expansion," said Yves Maillot, head of equities at Natixis Asset Management, which has 286.5 billion euros ($374.9 billion) of assets under management.
The MSCI Europe trades on a 12-month forward P/E ratio of around 11 times, according to Thomson Reuters data, with Maillot targeting a P/E of 12.5 times. "Of course the European equity market can stay cheap and 'unloved' for some time, but a catalyst for a P/E multiple expansion can come from a more accommodative and integrated policy in Europe," Maillot said.