• The pan-European Stoxx 600 closed up over 0.3%, with autos adding 2.7% to lead gains as most sectors ended the session in positive territory.
• Italian shares rallied on news that former ECB President Mario Draghi is set to form a new unity government in Italy.

LONDON — European stocks closed higher on Wednesday as positive market sentiment continues amid a busy week of earnings reports.

The pan-European Stoxx 600 closed up over 0.3%, with autos adding 2.7% to lead gains as most sectors ended the session in positive territory.

Italian shares led the way, with the FTSE MIB jumping 2.1% on news that former ECB President Mario Draghi is set to form a unity government.

European markets built on the positive momentum in Asia-Pacific markets Wednesday. U.S. stocks were a mixed bag, however, with the Dow Jones Industrial Average dipping into negative territory while the S&P 500 and Nasdaq indexes climbed slightly.

After a meteoric rise in GameStop stocks last week caused by a short squeeze, shares in the brick-and-mortar video game retailer have cratered more than 70% this week. Other Reddit trades have also come back down to earth amid trading restrictions from major brokers. However, GameStop and AMC Entertainment both climbed Wednesday.

Earnings news was top of mind for U.S. investors Wednesday after strong results from Amazon and Alphabet also helped stocks. Amazon reported earnings nearly double Wall Street estimates; however, the stock move was tempered by news that Jeff Bezos would step down as CEO.

Earnings season continues on Wednesday with AbbVie, Biogen, Qualcomm, eBay, PayPal and Yum China all reporting later today during U.S. trading hours.

The euro zone's economic downturn deepened in January as coronavirus-induced lockdown measures hit the services industry, new data revealed Wednesday. IHS Markit's final composite PMI (purchasing managers' index) reading for January, a useful gauge for economic health, came in at 47.8 last month compared to 49.1 in December, with anything below 50 representing a contraction.

Earnings, Italy in focus

In terms of earnings, Vodafone said its organic service revenue returned to growth in the third quarter, beating analyst expectations. The stock rose 5.9% and was one of the top gainers in Europe Wednesday.

Siemens significantly raised its full-year guidance on Wednesday after a strong fiscal first quarter that saw orders, revenue and net income outstrip market expectations. The German conglomerate's shares gained 2%.

Publicis shares edged 2.2% higher after the world's third-largest advertising group beat earnings expectations.

Meanwhile, Italian lenders Banco BPM, Intesa Sanpaolo and UniCredit, along with infrastructure group Atlantia and postal service Poste Italiane, all rallied after news that former ECB President Mario Draghi is expected to become Prime Minister of a new unity government in Italy.

At the top of the Stoxx 600, Dutch biotech firm Argenx surged 11.9%, touching its highest point on record, after a $1 billion equity raise.

German telecoms group Freenet climbed 6.5% after announcing a share buyback plan and restoring its dividend.

At the bottom of the European blue chip index, GlaxoSmithKline fell 6.3% despite news that it is working with German firm CureVac on Covid-19 vaccines to combat new variants of the disease. The company warned its 2021 earnings would drop by more than expected Wednesday.

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- CNBC.com staff contributed reporting to this market report.