By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Solid trade data from both China and the U.S. spurred a risk-on sentiment across financial markets on Friday, sending European stocks higher, with banks leading the charge north.

The Stoxx Europe 600 index rose 1.2% to close at 287.34, recouping from a 0.2% loss on Thursday, when a dovish turn by European Central Bank President Mario Draghi failed to boost sentiment.

Friday's gains were, however, not enough to push the index into positive territory for the week, leaving it with a 0.3% weekly decline.

"After a buoyant few weeks for global investment markets, investors were given a gentle -- yet timely -- reminder this week that the euro zone's persistent debt problems hadn't gone away, they've simply been bubbling away just beneath the surface," said Oliver Wallin, investment manager at Octopus Investments, in a note.

He was, however, still positive on the prospects for 2013, although slightly cautious.

"Our view that markets are overbought persists. As a result, we have been taking profits from the better performers within our portfolios throughout the month, reallocating to more defensive cyclicals that have not had such a good time of it," he said.

Shares of Vodafone Group PLC (VOD) gained 1.2% after Bank of America Merrill Lynch lifted the wireless-telecom firm to buy from neutral.

Shares of DNB ASA rose 4.6% after Credit Suisse lifted the Norwegian bank to neutral from underperform following a better-than-expected earnings report earlier in the week.

On a downbeat note, shares of Telecom Italia SpA fell 1.3%. The firm said it didn't meet its 2012 targets for gross operating profit and net debt reduction. .

Shares of SSAB AB slumped 5.1%, after the Swedish steelmaker posted a wider-than-expected operating loss in the fourth quarter and cut its dividend.

China and U.S. trade data

The broader European gains came as investors took inspiration from a mostly positive trading day in Asia, after Chinese trade data generated some optimism that the country's economy is on an upward trend.

Trade data for January showed monthly exports jumped 25% and imports climbed 28.8% from the year-ago period, giving the country a trade surplus of $29.2 billion. All three figures beat market expectations. .

U.S. data showed the trade deficit sank 20.7% to $38.5 billion in December, marking the smallest trade gap since January 2010. The sharper-than-expected decline almost certainly means the U.S. economy actually grew in the fourth quarter instead of contracting 0.1% as previously estimated.

"The U.S. is in recovery mode and it already looks like the first reading [on fourth-quarter GDP] will be revised based on this data. It should remove any talk of a double-dip recession in the U.S.," said Richard Hunter, head of equities at Hargreaves Lansdown. "One set of data can't be analyzed in isolation, but this does strengthen the bull case rather than the bear case," he said.

In Europe, political leaders agreed on a seven-year budget plan for the European Union, European Council President Herman Van Rompuy announced on Twitter without providing details. Earlier media reports said the budget was slashed by 34.4 billion euros ($46.1 billion) to EUR960 billion, making it the first budget reduction in the union's history.

Movers

Among country-specific European bourses, France's CAC 40 index rallied 1.4% to 3,649.50, with banks on the rise. For the week, the Paris benchmark lost 3.3%. Shares of BNP Paribas SA rose 2.4%, while shares of Société Générale SA gained 2.9%.

In the U.K., shares of banking heavyweight HSBC Holdings PLC (HBC) rose 2.3%. The FTSE 100 index gained 0.6% to 6,263.93, but lost 1.3% for the week.

Antofagasta PLC climbed 0.7% after HSBC raised the miner to neutral from underweight. .

The bank also upped Anglo American PLC to overweight from neutral, sending its shares 1.8% higher. Metal prices were mixed.

And in Germany, the DAX 30 index climbed 0.8% to 7,652.14, trimming its weekly loss to 2.3%.

Shares of BMW AG rose 2.5%, after the car maker said it expects further sales growth, targeting an all-time high in 2013. .

Outside the major indexes, shares of Swiss Life Holding AG rose 3.7%, as J.P. Morgan Cazenove lifted the insurance firm to overweight from neutral.

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