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European shares scaled fresh multi-month peaks on Friday, with forecast-beating German data and bigger-than-expected paybacks of crisis-time loans by banks fuelling the conviction that the region is on the recovery path.
Frankfurt's DAX index led the rally, scaling five-year highs and closing 1.4 percent higher after the closely-watched Ifo January business morale index beat the consensus to match the most optimistic economist's forecast.
Confidence in the euro zone recovery was further bolstered by news that banks will repay 137 billion euros ($183 billion)of European Central Bank crisis loans next week, around a third more than expected.
The EuroSTOXX 50 index of euro zone blue chips provisionally closed up 0.8 percent at 2,744.18 after setting a fresh 18-month intra-day peak of 2,748.13.
"People are choosing to pounce on any bit of good news. For the moment the trend is very much to the upside," said Stephen Walker, head of equities research and market strategy at Ashcourt Rowan.
"From a really deep fundamental standpoint I probably still have some pretty major concerns but at the moment the market is not in the mood to worry about that. It's a sentiment thing - people have gone from being extremely pessimistic to being far more optimistic. At the moment any news is good news."
The EuroSTOXX 50, up 4.1 percent so far in January, is on track for an eighth month of gains, extending its longest bull run since 1998, but is still 67 percent below the peaks of 2007.
In a further signal of stronger appetite for risk assets, implied volatility on the euro zone blue chip index fell to fresh six month lows.
The improved economic backdrop and stronger investor confidence has enabled investors to focus more on company specific factors, boosting the performance of stock pickers.
"Quite understandably, people are beginning to differentiate more between markets and, even within, so it is definitely more of a stock picker's world," said Andrew Milligan, head of global strategy at Standard Life Investments.
"The tech sector sums it up perfectly ... We are all well aware that smart phones are the theme to play but within that you are very definitely seeing winners and losers."
Nokia came out as a loser, extending Thursday's sharp drop as the Finnish handset maker's plans to scrap dividends for the first time in its recorded history fanned concerns about its cash position.
On the gainers' board, Bayer was the top performer among European blue chips, after Bank of America Merrill Lynch added the drugmaker to its "Europe 1" list of preferred stocks.
"Valuation remains attractive with shares trading at circa 11 times expected 2014 earnings despite premium growth," BofAML analysts said in a note, targetting a share price of 84 euros on the stock against 75.92 euros currently.
"We continue to believe product launches will reinvigorate top line growth and improve investor sentiment."