News of rebounding German investor sentiment sent European stock markets and the euro racing higher Tuesday.
London's benchmark FTSE 100 index of leading shares rose 0.45 percent compared with Monday's close to stand at 6,702.23 points in afternoon trading.
Frankfurt's DAX 30 motored 1.37 percent higher to 9,434.03 points and the CAC 40 in Paris won 0.80 percent to 4,260.09.
The European single currency increased to $1.2530 from $1.2448 late in New York on Monday.
Investment sentiment in Germany rebounded in November, a survey showed Tuesday, adding to signs that Europe's biggest economy is stabilising in another piece of positive news for the eurozone.
- German optimism grows -
After hitting a 22-month low in October, the widely watched investor confidence index calculated by the ZEW economic institute was back in positive territory in November, jumping to 11.5 points from minus 3.6 points the previous month, ZEW said in a statement.
"The latest ZEW economic surveys showed analysts and institutional investors are more optimistic about conditions in the eurozone's largest economy than they've been since July -- and far more so than the markets had expected," said Alpari analyst Craig Erlam.
The ZEW barometer increased for the first time so far this year, soothing investor concerns over the German economy, which narrowly avoided a recession in the third quarter.
Europe's equity markets had bounced into modest gains on Monday after European Central Bank chief Mario Draghi hinted at more steps to tackle the threat of deflation.
"Stocks remain underpinned by comments from Draghi ... that an expanded asset purchase programme could include government bonds," added Atif Latif, head of trading at Guardian Stockbrokers.
In Frankfurt, German pharmaceuticals maker Merck KGaA saw its share price gain 1.6 percent to 77.92 euros.
The stock had jumped almost 4.0 percent on Monday after Merck bought US speciality chemicals firm Sigma-Aldrich for 13.1 billion euros ($17 billion).
In London, energy explorer Tullow Oil was the biggest gainer following positive broker comment. Tullow shares jumped 2.9 percent to 472.20 pence.
Back in the foreign exchange market, the British pound hit a one-month low against the euro on news that 12-month inflation rose to 1.3 percent in October from 1.2 percent in September. Expectations had been for no change.
The euro rose to 80.02 British pence from 79.61 late on Monday. The pound meanwhile firmed to $1.5655, up from $1.5637 on Monday.
- Yen under pressure -
The yen remained under pressure following Monday's news that the Japanese economy has slumped into recession, with Prime Minister Shinzo Abe saying Tuesday he was calling a snap election and delaying an expected sales tax rise.
The euro surged as high as 146.70 yen, the highest level since October 2008.
And the dollar rose as high 116.94 yen, which was not far from the October 2007 peak of 117.05 yen that was hit Monday, but then pulled back to 116.47.
On the London Bullion Market, the price of gold rose to $1,202 an ounce from $1,182.50 late on Monday.
Asian equities traded mixed on Tuesday, with Tokyo leading gainers on bargain-buying after the previous day's sell-off, while Wall Street provided some support with another record close.
Tokyo -- which lost almost three percent Monday on news that Japan's economy was in recession -- rebounded by 2.18 percent.
Hong Kong and Shanghai extended their previous day's losses, despite a new trading link-up between the two exchanges. Hong Kong stocks lost 1.13 percent and Shanghai shed 0.71 percent.
Wall Street opened slightly higher on Tuesday, a day after huge takeovers in the oil and pharmaceutical sectors helped lift the S&P 500 to a new record.
Five minutes into trade, the Dow Jones Industrial Average stood at 17,654.05, up 0.04 percent.
The broad-based S&P 500 added 0.12 percent to 2,043.86, while the tech-rich Nasdaq Composite Index gained 0.20 percent to 4,680.30.