The regional STOXX 600 index closed up 0.05% after a mixed session, while Germany's DAX rose 0.1%, France's CAC inched 0.2% lower and Britain's FTSE 100 fell 0.7%.

Investors are awaiting the start of the U.S. earnings season this week as well as clarity on fiscal spending plans under incoming U.S. President Joe Biden, who takes office on Jan. 20.

In Europe, automakers jumped 1.7% to lead gains after Renault, BMW and VW reported 2020 sales.

Their U.S. carmaking rivals also got a boost after General Motors announced its entry into the growing electric delivery vehicle business.

Other cyclicals such as banks, travel and leisure and oil and gas extended last week's rally on hopes that a larger U.S. stimulus under the incoming Biden administration will spur faster economic recovery.

Oil majors BP and Royal Dutch Shell gained close to 2% as crude prices hit an 11-month high on tighter supply and expectations for a drop in U.S. inventories. [O/R]

Still, losses in defensive sectors such as healthcare, utilities and consumer staples checked gains in most markets.

"Investors are still wondering where the next big catalyst for further upside will come from, and are painfully aware that the COVID-19 crisis remains untamed despite the introduction of vaccination programmes," Chris Beauchamp, chief market analyst at IG wrote in a client note.

Britain's exporter-heavy FTSE 100 underperformed other European markets, hit by a stronger pound and a surge in new COVID-19 cases. [GBP/]

Companies listed on Europe's STOXX 600 are expected to report a 26.3% drop in fourth-quarter earnings, data from Refinitiv I/B/E/S shows, as restrictions to control soaring coronavirus cases slowed an economic recovery.

That comes ahead of a clear improvement predicted for the first two quarters of 2021, when earnings are set to rise 40.4% and 75.1% respectively.

Maersk rose 3.4% after brokerage Berenberg upgraded the Danish shipping company's shares to "buy", saying earnings momentum driven by freight prices could see it run higher.

Swiss online pharmacy chain Zur Rose hit a record high, surging almost 15% to the top of STOXX 600, after BofA Global Research started coverage with "buy" rating.

(Reporting by Amal S and Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu, Arun Koyyur and Alexander Smith)

By Sruthi Shankar