The Stoxx Europe 600 index surged 3% to end at 237.49.
It extended gains in afternoon trade after an encouraging report on U.S. retail sales, which also buoyed Wall Street.
For the week, which was marked by heightened volatility, the Stoxx 600 fell 0.6%.
Bank stocks remained the focus of attention after France, Spain, Italy and Belgium all introduced various short-selling bans to try to stem the sector's recent decline.
Shares of BNP Paribas rose 4.2% and Natixis added 9.2%, helping lift the French CAC 40 index 4% higher to 3,213.88.
The gain came even as data showed the French economy recorded no growth in the second quarter.
In other markets that imposed bans, UniCredit SpA gained 5.6% in Milan, Banco Santander rallied 6.6% in Madrid, and Dexia SA surged 17% in Brussels.
The gains also came after the European Central Bank said overnight lending to banks through its marginal lending facility fell back sharply, to EUR227 million from a three-month high of over EUR4 billion the previous day.
"While the ban on short selling equities may support share prices for a day or two, unfortunately it is highly unlikely to prevent a further selloff," said Manoj Ladwa, senior trader at ETX Capital.
"While they may not be able to short sell, any rally in stocks will only give traders the opportunity to close out of existing positions," he added.
David Jones, chief market strategist at IG Index, said previous efforts to clamp down on short selling "have done little to calm market nerves."
He noted that a similar ban imposed in the U.K. in 2008 provided a temporary boost for markets but that London's benchmark ended up losing another 20% over the next month.
Banks in other jurisdictions were also sharply higher, including a 5.3% jump for Barclays PLC in London, which boosted the FTSE 100 index by 3% to 5,320.03.
Barclays shares lost a third of their value from the start of July up to Thursday's close.
Societe Generale analyst James Invine said in a note to clients Friday that the valuations of Barclays, Lloyds Banking Group PLC and Royal Bank of Scotland Group are "far too low" at just half their tangible book value as stocks have tumbled in recent weeks.
Switzerland's UBS AG was another top performer, rising 5.7% as the dollar and euro continued to rebound against the Swiss franc.
The strong franc weighed heavily on the earnings of many Swiss companies in the second quarter.
In other sectors, mining stocks rose as investors took on a little more risk following the recent declines.
London-listed shares of Kazakhmys PLC jumped 6.3%.
In Germany, the DAX 30 index rose 3.5% to 5,997.74, as insurer Allianz SE rallied 5.3% and utility RWE AG surged 6.5%.
The latter fell sharply earlier in the week after reporting a second-quarter loss due to Germany's plan to shut nuclear reactors.
In other German trading, shares of Air Berlin were among the worst performers in Frankfurt, dropping 5.9% as political upheaval in North Africa hurt the group's bookings.
Shares of Capgemini rose 3.6%, reversing earlier losses.
Bank of America Merrill Lynch downgraded the information-technology services company to neutral from buy, saying there are significant risks to margin estimates for the group.
Among other technology stocks, Alcatel-Lucent rallied 7.9% and Infineon Technologies AG gained 4.5%.
And Portuguese retailer Jeronimo Martins rose 4.4% after J.P. Morgan Cazenove upgraded the stock to neutral from underweight, saying the company's Polish business is facing less competitive pressure than previously expected.
Portugal's PSI 20 index rose 3% to 6,202.46 as officials from the European Union, the European Central Bank and the International Monetary Fund said the country is on track to hit its deficit targets for the year.
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