European markets closed higher Thursday following a mixed start to 2025 trading.

The pan-European Stoxx 600 index closed 0.6% higher, reversing earlier losses as regional bourses reopened after the New Year's Day holiday.

Oil and gas stocks led gains, up 2.3%, while utilities climbed 1.6%.

Europe's banking index and autos stocks dipped, however, losing 0.3% and 0.47% respectively, as uncertainty remained over the economic outlook and potential tariffs under U.S. President-elect Donald Trump.

France's CAC 40 also erased earlier losses to gain 0.18%, though lagged other bourses. President Emmanuel Macron appeared to admit on Tuesday that his decision to hold snap parliamentary elections last year caused problems for the country.

"We are also faced with political instability, it is not specific to France, we also see it among our German friends who have just dissolved their Assembly. But it legitimately worries us," Macron said in his New Year address.

"I must admit tonight that the dissolution [of parliament] has brought, for the moment, more divisions to the Assembly than solutions for the French," he added.

Elsewhere, Germany's DAX rose 0.58% while the U.K.'s FTSE 100 added 1.07%.

It comes as manufacturing activity pulled back in December across Germany and France in a sign of continued woe for the euro zone's two largest economies. The HCOB manufacturing purchasing managers index came in at 42.5 last month in Germany, down from 43.0 in November. Meanwhile in France, production volumes fell to 41.9, the sharpest fall since May 2020.

Manufacturing activity also slowed in Italy in December, the data showed, while Spain recorded a further month of expansion, as the southern European economy continues to gain steam.

In currency markets, both sterling and the euro plunged against a strengthening dollar. The British pound hit its lowest level against the greenback since April 2024, and was last down 1.17% at $1.237.

The euro was down 1% to $1.025, its lowest level since November 2022.

U.K. house prices rose 0.7% month-on-month in December, as activity remained unseasonably strong in the final month of the year, data from British lender Nationwide showed Thursday. Home prices increased 4.7% over the year, bringing them within touching distance of the all-time highs recorded in summer 2022.

Asian stocks traded mixed overnight, with China stocks leading losses as several major markets resumed trading after the New Year holiday.

U.S. stocks opened higher as trading got underway for 2025, before falling flat. Traders hope that the market can regain the momentum that propelled it to log two straight years of annual gains above 20%.

— CNBC's Christina Cheddar Berk and Sophie Kiderlin contributed to this market report