The pan-European STOXX 600 gained 0.3 percent while euro zone stocks and blue-chips followed suit as the U.S. central bank's optimism on the economy stoked renewed enthusiasm for financials and cyclical sectors in Europe.

The sharp jump in the U.S. dollar was also spurring investors to see an end to the euro's rally which had caused cuts to earnings estimates for the region's stocks.

"The market’s reaction this morning is positive on the back of the Fed acting in line with expectations, and with that the market anticipates the Euro strength momentum to fade," said Britta Weidenbach, head of European equities at Deutsche Asset Management.

Banks, the biggest gainers from interest rate raises which cushion margins, jumped 1.5 percent to a one-month high on the prospect of the European Central Bank following the U.S. in bringing ultra-loose monetary policy to an end.

Analysts have been increasing their earnings expectations for European banks for much of the past 12 months.

"No-one is expecting any big moves on the interest rate front in Europe but it's about the direction upwards, and that is good for financials which account for a big part of European indices," said Weidenbach.

Commerzbank led gainers, boosted up 5 percent by reports of merger approaches.

Reuters reported on Wednesday UniCredit had approached Commerzbank for a possible merger, and German weekly WirtschaftsWoche on Thursday said the government favours a merger of the state-backed bank with France's BNP Paribas .

BNP's shares rose 1.7 percent while Unicredit was up 2.6 percent.

Merger and acquisition activity continued to drive shares with Irish building materials firm CRH rising 3.4 percent, bolstering the construction sector, after it agreed to buy U.S. cement maker Ash Grove Cement Co .

Meanwhile shares in Finnish power provider Fortum slipped 4 percent from a two-year high hit on Wednesday after it said it was in talks to buy E.ON's stake in Uniper.

"Fortum may have picked an opportune point in the cycle for its bid, although enthusiasm for the transaction banks on investors being willing to value Uniper's assets on a higher multiple within Fortum," said Deutsche Bank analysts.

Troubled British outsourcer Capita slumped 14 percent to the bottom of the European index after first-half revenue slipped and the hunt for a new CEO continued.

(Reporting by Helen Reid, Editing by Kit Rees)