• The pan-European Stoxx 600 provisionally closed up by around 1.6%, with banks rallying 5.7% to lead gains.
• Investors are keeping an eye on two runoff elections in Georgia that will determine control of the U.S. Senate.

LONDON — European stocks closed higher on Wednesday as the coronavirus pandemic and U.S. political developments remain a key focus for investors.

The pan-European Stoxx 600 provisionally closed up by around 1.6%, with banks rallying 5.7% to lead gains as most sectors and major bourses ended in positive territory.

Investors are keeping an eye on two runoff elections in Georgia that will determine control of the U.S. Senate. Republican Senators Kelly Loeffler and David Perdue are facing Democratic challengers Rev. Raphael Warnock and Jon Ossoff, respectively.

If both Democrats win, that would make a 50-50 tie in the upper chamber, with Vice President-elect Kamala Harris as the tiebreaker vote to give the party control of the Senate. NBC News now projects that Warnock has unseated Loeffler, while Ossoff leads Perdue in a race that is still too close to call.

On Wall Street, stocks rose as traders kept an eye on the two runoff elections in Georgia. The Dow Jones Industrial Average climbed nearly 500 points while the Nasdaq and S&P 500 indexes also traded higher.

European investors focused on the latest coronavirus developments, with England entering a third national lockdown on Tuesday and Germany on Tuesday extending its own lockdown until Jan. 31. Concerns are growing over a new strain of the virus found in South Africa; former FDA chief Dr. Scott Gottlieb warned Tuesday that the new variant appears to inhibit antibody drugs.  

The European Medicines Agency on Wednesday recommended Moderna's coronavirus vaccine for use in the European Union, at a time when criticism grows about the slow rollout of jabs across the bloc.

Euro zone economic activity contracted more sharply than expected in December, final composite purchasing manager's index (PMI) data revealed on Wednesday. December's reading came in at 49.1, an increase from November's 45.3 but significantly below an earlier flash estimate of 49.8. Anything below 50 indicates a contraction.

Banks were the big winners on Wednesday as hopes of a Democratic Senate majority stateside drove a rotation into value sectors. HSBC, Standard Chartered and ABN Amro gained 9.9%, 9.3% and 8.6%, respectively.

At the other end of the European blue-chip index, Dutch e-commerce company Adyen and Spanish telecom firm Cellnex both slipped more than 5%.

- CNBC's Eustance Huang and Fred Imbert contributed reporting to this report.