European shares closed sharply higher on Tuesday after a positive Spanish bond auction and better-than-expected French manufacturing data buoyed investor sentiment.
The pan-European FTSEurofirst 300 Index provisionally closed 2.4 percent higher at 1,182.49 points, its biggest one-day gain in seven months. All major country and sector indexes ended in positive territory.
The Spanish IBEX helped lead the rally, after Spain's three-month borrowing costs fell to the lowest level on record at a bond auction on Tuesday.
(Read More: Spain 3-Month Borrowing Cost Falls to Lowest Ever)
The Bank of Spain also issued its monthly bulletin, in which it estimated the Spanish economy contracted by 0.5 percent in the first three months of 2013, quarter-on-quarter.
European shares had received a boost at the open, after French flash April Composite PMI came in better-than-expected at 44.2 against 41.9 last month. Both the manufacturing and services component of the figure beat analysts' expectations. France's CAC 40 was the biggest gainer out of the major European indexes, on the back of the news.
(Read More: Germany Drags Down Growth in Euro Zone)
German data missed analysts' expectations with the composite number coming in at 48.8 for April against 51.0 for March. Some analysts hope the sharp drop in German business activity may herald a rates cut from the ECB as early as its next policy meeting on May 2.
(Read More: ECB Should Not Cut Rates: Top German Adviser)
The PMI figure for the whole euro zone came in at 46.5, in line with analysts' expectations and the same as last month's number.
Italian consumer confidence unexpectedly rose in April, despite the political stalemate, data showed on Tuesday. The FTSE MIB closed provisionally 2.9 percent higher.
(Read More: Italy's Napolitano Speeds Hunt for New Government)
Stock markets also received a boost from the technology sector, which was boosted by upbeat results from ARM Holdings. The U.K.-based chip designer announced a first-quarter earnings profit that beat analysts' forecasts. ARM topped the gainers on London's FTSE 100, closing unofficially 11.79 percent up.
Swedbank was among other European firms that posted better-than-expected results. Associated British Foods predicted its Primark discount clothes change would remain Britain's fastest-growing major retailer this year, but that profit growth would slow. The group posted a 20 percent increase in operating profit in the last six months on Primark's success.
However, several major European companies announced upcoming job cuts on Tuesday. Swiss pharmaceutical giant Roche said it would slash 170 jobs in Germany and the U.S., while Royal Imtech announced additional writedowns at its German operations and said it plans to cut 1,300 jobs.
Likewise, BASF, the world's largest chemical maker, said it would cut 500 jobs by 2015 and HSBC is to cut 1,149 jobs in Britain as part of a three-year revival plan.
