European shares advanced for a fourth straight session on Thursday as strong auctions of euro zone debt and encouraging results from top U.S. banks triggered a rally led by battered financial stocks.
Euro zone banks <.SX7E>, which had fallen 38 percent last year on fears relating to their holdings of sovereign debt, rallied 7.6 percent on the back of healthy demand for French and Spanish bonds, a show of confidence in regional governments' ability to refinance their debt.
Also supporting the sector were fourth-quarter earnings from U.S. lenders Morgan Stanley
The rising risk appetite fuelled some profit taking on defensive sectors such as utilities <.SX6P>, healthcare <.SXDP> and food & beverages <.SX3P>, down between 0.5 percent and 0.6 percent, which tend to outperform when investors are more bearish.
Stocks that have been weak, like financials, are going up and what has been strong is extremely overbought, said Valerie Gastaldy, head of Paris-based technical analysis firm Day By Day.
The FTSEurofirst 300 <.FTEU3> index of top European shares provisionally ended up 1.1 percent at 1,045.97. Volume was 135 percent of the 90-day daily average, with Germany's DAX <.GDAXI> one of the major contributors at nearly double its average.
(Reporting By Francesco Canepa)