Gains in the technology sector on growing expectations for its earnings prospects and renewed activity in financials as the market absorbed tax reforms pushed Frankfurt higher.
At 5.30 p.m., the Xetra DAX index was 64.83 higher at 7,383.21.
Commerzbank lost €1.10 to €37.50 while Dresdner Bank put on 53 cents to €45.60 as Germany's banking watchdog blocked the voting rights of CoBRa, Commerzbank's largest shareholder with a 17 per cent stake.
However, the Federal Banking Supervisory Authority gave no reason for forbidding CoBRa from exercising the voting rights on the stake in Commerzbank that it has amassed recently.
Analysts said the decision made a merger between Commerzbank and Dresdner Bank more likely because CoBRa had been cool to a domestic merger and regarded as an obstacle to a link-up. The two banks have been holding preliminary discussions on a link for the past three weeks.
Allianz, a key Dresdner shareholder, put on €11.20 to €403.80 while Deutsche Bank gained €3.61 to €97.08.
Tech stocks performed well, in line with their European peers, on expectations of good second-quarter earnings from business software maker SAP and Finland's Nokia later this month.
Paris returned from the three-day Bastille Day holiday weekend with renewed enthusiasm for technology, media and telecoms shares.
The CAC-40 index finished up 48.89 at 6,619.25 while the high-tech, high-growth Nouveau Marche closed 148.6 points, or more than 4 per cent, higher at 3,835.25.
Nasdaq's strong close on Friday, and good financial results from companies like Yahoo!, were still feeding positive sentiment.
France Telecom closed €4.10 higher at €158.90, buoyed by reports that the issue of shares in its Internet service provider Wanadoo was 16 times oversubscribed.
Alcatel reached the year's intra-day high of €82.80, benefiting from forthcoming contracts with five of nine winners of French local loop licences. The shares closed €2 higher at €81.60.
Cap Gemini closed €7.40 higher at €197.10.
