Both Europe's Dow Jones Stoxx 50 and Stoxx 600 indexes recorded their second weekly gain in three, as companies including Deutsche Telekom AG and UBS AG beat analyst forecasts and said profit would improve.
The Stoxx 50 today lost 0.1 percent to 2342.48, trimming its advance for the week to 2 percent. The Stoxx 600 added 0.1 percent to 197.51. It climbed 2 percent since last Friday, with banks and phone stocks accounting for a third of the gain.
"We clearly see light at the end of the tunnel," said Harald Sporleder, who manages US$2.3 billion at Allianz Dresdner Asset Management in Frankfurt and who is buying shares in European banks and insurance companies.
"The market is speculating on a step by step economic recovery, which will at the same time improve" revenue growth.
Benchmark indexes rose in all of the 17 Western European markets this week. The UK's FTSE 100 Index added 2 percent, Germany's DAX Index climbed 1.1 percent and France's CAC 40 advanced 0.9 percent.
Stocks rose this week even as economy of the euro region stagnated in the first quarter. The gross domestic product of Germany, Italy and the Netherlands shrank in the period, signaling that Europe is on the brink of recession.
Deutsche Telekom, Europe's biggest phone company, rose 6.3 percent to 12.30 euros (US$10.76). The company said it expects to break even this year after reporting its first profit in eight quarters.
UBS, Europe's largest bank, gained 9.5 percent to 71 Swiss francs (US$93.65). It said Tuesday that first-quarter net income fell 11 percent, less than the 25 percent slide forecast by analysts.
"It's starting to smell like the end of the bear market," UBS President Peter Wuffli said then.
Bayer AG, a German drug and chemical maker, advanced 7.1 percent to 18.23 euros this week after reporting higher-than-expected earnings on May 7 after cutting costs.
"In five year's time you'll look back and say this was the time to buy stocks," said Roger Hornett, who helps oversee US$5.3 billion as a global strategist at Theodoor Gilissen Securities in London. The better-than-forecast results indicate that "people have been overly pessimistic" about the outlook for earnings.
Media stocks led percentage gains for the five-day period, lifting the Stoxx media index 5.3 percent.
Havas SA, the world's sixth-largest advertising company, surged 24 percent to 4.04 euros. The Paris-based company said Tuesday it cut some of its debt and arrested a decline in sales.
Retailers surged for the week as takeover speculation boosted shares of Selfridges Plc, which owns the biggest department store on London's Oxford Street, and Debenhams Plc, the UK's second-biggest department-store chain. The Stoxx retail index climbed 5 percent.
Debenhams jumped 23 percent to £4.0625 (US$2.51), while Selfridges added 11 percent to £3.945.
LogicaCMG Plc, Europe's third-largest provider of computer services, jumped 21 percent to £1.4725. It said Thursday demand from UK customers improved in the first three months of the year.
Chelsfield Plc, a UK real estate company, led Stoxx 600 gains, surging 32 percent to £3.04. The real-estate company that owns offices and the Wentworth golf-course said Chairman Elliott Bernerd and the management team might make a cash bid to buy the company.