The FTSEurofirst 300 climbed to a 6-1/2-year high on Friday and recorded its 10th straight week of gains, with analysts saying that expectations of a pick-up in merger and acquisition activity will further boost sentiment.
The benchmark index of top European shares advanced 0.4 percent this week, its longest weekly winning streak since April. It closed flat at 1,394.98 points, after staying in positive territory throughout the session, as some investors took profits on the last trading day of the week.
The market was underpinned by a 1 percent rise in the European healthcare index, making it the best-performing sector, as Shire leaped 17 percent to 43.72 pounds after AbbVie confirmed it had made an offer to acquire it.
Shire rejected the offer worth 46.26 pounds a share, saying it fundamentally undervalued the company. Shire has been seen as a take-over target for US drugmakers due to a mid-sized market value and its tax base in Ireland, where effective corporate tax rates are among the lowest in the world.
"We have had a dearth in M&A activity in the last few years but it does appear to be picking up as business confidence has improved. This is supportive for the market," Robert Parkes, equity strategist at HSBC, said.
"Investors' attention will start to shift from macroeconomic data to the second-quarter earnings numbers. We are relatively optimistic on the outlook for European earnings and expect them to grow by 12 percent this year and the next."
According to Thomson Reuters data, 44 percent of companies in the STOXX Europe 600 index reported earnings above analyst estimates in the first quarter. On average, 48 percent of companies beat analyst estimates in a typical quarter.
"M&A is going to be a big theme, especially in the pharma sector, in the second part of the year. A lot of companies have accumulated a lot of cash and are looking for interesting deals," said Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets in Brussels.
"The market has paused after a good week as some investors have taken profits, but we are in a bull market. It's a good environment for equities as economic outlook is improving and central banks generally have been quite supportive."
Among other sharp movers, Norway's Telenor fell 2.1 percent after its trade minister said the government would ask parliament for the right to cut its stake in the telecom company and industrial group Kongsberg Gruppen.
France's state-controlled utility EDF fell 1.8 percent, down for a second day, as analysts at UBS and Natixis cut their target price after the government decided to scrap a planned increase in electricity prices.
"The 2013 re-rating of EDF was to a large extent driven by a change in investor perception because the regulatory environment seemed to become more reliable and predictable," UBS analysts wrote in a note. "Therefore, the cancellation of the already agreed tariff hike could lead to an increased risk perception on lower regulatory visibility."
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