European equities saw their largest ever inflows last week, totalling $5.8 billion (3.7 billion pounds) according to EPFR, and investors are buoyed by improving domestic demand in Europe and a drop in the euro, which should boost export competitiveness.

Corporate revenues are still declining, and there are substantial market jitters over the sovereign debt stand-off in Greece and tensions between Russia and the West over Ukraine.

However, European shares are trading at seven-year highs in part because many in the market believe companies in the region have turned a corner.

Investors lifted their exposure to euro zone equities to the highest since May 2007 in February, a Bank of America Merrill Lynch survey showed last week, confirming trends seen in a Reuters survey.

Fund inflows have helped push the pan-European STOXX Europe 600 up 12 percent since the start of 2015, after a modest 4.4 percent gain last year, and Germany's DAX index has set new record highs.

German equities and discretionary stocks are the most popular trades among foreign investors, who have pumped $21 billion dollars into European stocks since the start of the year, BNP Paribas said, as investors play on the themes of a weak euro and a more confident consumer.

"A lot of money has been allocated into Europe in the last few weeks. Consumer discretionary and autos are doing very well," Veronika Pechlaner, European fund manager at Ashburton, said.

"People are positioning for a pick-up in growth. While that won't happen overnight, that'll help the domestic cyclicals, and there are also plays on the weak euro."

With over half of STOXX Europe 600 companies having reported results for the fourth quarter, 60 percent have beaten or met revenue expectations, Thomson Reuters Starmine data shows.

Forty five percent of companies beat expectations, and 27 percent have missed, resulting in a net beat of 18 percent - the biggest proportion of "beats" for 10 quarters, UBS said.

Quarterly revenues are still in decline overall – down 6 percent year-on-year in the fourth quarter – and the slump in oil, while helpful for consumers of energy, is squeezing the oil and gas sector.

However, the likes of Danish jeweller Pandora, Swedish fashion store H&M and chip-designer ARM are among the consumer and tech stocks that have posted double- digit year-on-year growth, ahead of market expectations.   

This revenue performance is seen by some as a turning point after years of earnings doldrums in Europe, and suggests that companies are generating new business and not relying solely on cost-cutting to boost their bottom line.

    

Link to European earnings growth forecasts: http://link.reuters.com/ned35v

   

Earnings, or profit, growth has been absent for five years, and has missed expectations for four years.

There have been "47 months uninterrupted of earnings downgrades," Nick Nelson, European equity strategist at UBS, said, "and investors are understandably getting a little bit fed up with the lack of earnings growth in Europe."

"(However) revenues are starting to improve because things are stabilising in Europe. Europe is still not the engine of growth for most companies, but it's the European market that seems to be at an inflection point."

(Editing by Susan Fenton)

By Alistair Smout