French stocks outperformed the broad market, with the CAC 40 index surging 1.1 percent, after data showed France's manufacturing sector emerging from a long decline to grow even more strongly in March than initially estimated.
Overall, data showed growth in euro zone manufacturing eased slightly as expected, but the broad rise in output made the bloc's economic recovery look more entrenched, fuelling hopes of a long-awaited rebound in corporate profits.
In a similar picture from the other side of the Atlantic, U.S. manufacturing activity slowed in March from a near-four-year high in the previous month, but the pace of growth and hiring remained brisk.
At 1400 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,343.56 points, gaining ground for the sixth consecutive session. The benchmark index -which recorded a gain of 1.3 percent in the first quarter - has risen about 5.3 percent since mid-March.
The euro zone's blue-chip Euro STOXX 50 index was up 1 percent, at 3,193.52 points, hitting a level not seen since September 2008.
The European stock market's rally in the past few days has been fuelled in part by mounting expectations of new stimulus measures from the European Central Bank, cemented by recent lower-than-expected euro zone inflation data.
Last week, ECB policymaker Jens Weidmann said negative interest rates were an option, and that buying loans and other assets from banks to support the bloc was not out of the question. His comments surprised investors, given the monetary conservatism of the German central bank he heads.
"The comments made by Weidmann were very clear: the door is now open for quantitative easing in Europe, which is very good news for markets. This could be a game changer," Valquant strategist Eric Galiegue said.
"But beyond the support from the ECB, investors have plenty of reasons to be cautious at this stage. In Europe for instance, despite all the hype about a potential rebound in profits, earnings momentum remains negative, which is a red flag for me."
Europe's earnings momentum - analysts' forecast upgrades minus downgrades as a percentage of the total - has been deteriorating since late January.
It has slipped from -2.9 percent two months ago to -4.6 percent currently, data from Thomson Reuters Datastream shows, highlighting an acceleration in analyst downgrades before the first-quarter earnings season. For a chart on earnings momentum, click: http://link.reuters.com/pag28v
M&A activity also boosted the mood on Tuesday, with Alstom rising 9.5 percent, after the French turbine and train maker said it will sell its heat exchange unit to Triton, a European private equity group.
Shares in Metso surged 19 percent after Scottish Weir Group approached the Finnish company over a possible $5 billion merger.
"(These deals) are encouraging as they indicate confidence in the markets that corporates are willing to put their hands in their pockets to undertake M&A," said Neil Wilkinson, European equities fund manager at Royal London Asset Management.
Investors also welcomed reports that global mining company BHP Billiton was weighing options to simplify its assets including a possible spin-off of some businesses, sending its shares up 2.6 percent.