Europe close: Italian banks storm ahead

European stocks ended higher, with Italian equities registering sharp gains as shares in the country's banks raced higher amid heavy market speculation concerning a possible state bail-out for stricken lender Banca Monte dei Pachi di Siena.

The benchmark Stoxx Europe 600 index was 0.97% higher, while Germany’s DAX and France’s CAC 40 gained 0.85% and 1.26%, respectively. Italy’s FTSE MIB was the standout performer, rocketing 4.15%.

At the same time, the FTSE Italia All-Share Banks index extended earlier gains, closing up by 8.97%.

"Plans to raise substantial funds at Monte dei Paschi have hit the buffers after the ‘No’ vote and while a likely government bailout may not be the ideal otucome for the bank, it will mitigate the risk of a collapse and contagion in the region, hence the widespread gains across the financial sector today," IG's Joshua Mahony said.

According to a report from Bloomberg, from after the close of trade on 5 December, Rome was working on a so-called 'precautionary recapitalisation' which might be brought into action if the private sector option for rebuilding the lender's capital buffers fell through.

EU rules allowed for such measures so long as "some" shares and bondholders were bailed-in, entailing possible losses for them.

Meanwhile, oil prices fell back, with West Texas Intermediate down 1.77% to $50.89 per barrel and Brent crude 1.74% lower at $54.00.

On the data front, the final reading on Eurozone economic growth in the third quarter was unexpectedly revised higher on Tuesday, boosted by household and public sector spending.

Eurostat raised its estimate on gross domestic product to year-on-year growth of 1.7% from a previous 1.6%. Second quarter growth was also revised higher by one tenth of a percentage point to 1.7%. Quarter-on-quarter GDP was confirmed at a 0.3% rise.

Xtrade Chief market analyst Paul Sirani said: “The minor upward revision of year-on-year growth in the Eurozone is unlikely to be enough to halt the case for further monetary easing. With the uncertainty caused by Brexit and Italy wavering over its membership of the single currency, ECB President Mario Draghi faces an increasingly tricky task. Extending rather than tapering the QE programme looks likely at this stage.

"It’s not all doom and gloom, though, with German factory orders rocketing in October. Any positive signs coming out of Europe’s powerhouse could detract from the bleak outlook for the region and help the euro hold its own.”

Figures from Destatis showed German manufacturing orders rose 4.9% in October adjusted for seasonal swings and calendar effects, beating expectations for a 0.7% increase.

Domestic orders were up 6.3% and foreign orders were 3.9% ahead of the previous month.

In currency markets, the euro was flat against the dollar at 1.0762 as investors shrugged off the 'no' result from the Italian referendum.

FXTM Research analyst Lukman Otunuga said: “The mounting fears of political instability in Europe, uncertainty over the Italian economy and fears of Italy leaving the Eurozone were pushed to the side with risk-on propelling the euro higher.”

On the corporate front, HSBC rallied as Morgan Stanley upgraded the stock to ‘equalweight’ from ‘underweight’.

Pharmaceutical giant Astrazenca edged higher as it announced that data from a Phase III trial of Tagrisso has shown the medicine is superior to standard chemotherapy for the treatment of lung cancer.

Plumbing and heating products distributor Wolseley moved higher as it reported a rise in first-quarter revenue, including increased revenue from the US, but said markets in the UK and the Nordic region were challenging.

Low-cost carrier EasyJet also gained as it posted its passenger statistics for November, with total passengers for the month improving 2.9% to 4,947,060 year-on-year, although the load factor dropped 0.6 percentage points to 89.7%.

Industrial equipment rental company Ashtead was up after it said rental revenue in the six months to 31 October grew 13% on last year to £1.45bn, pre-tax profit was up 9% to £425.9m and the interim dividend was hoisted 19% to 4.75p per share.

Power generation firm Drax surged after announcing a conditional agreement to buy Opus Energy for £340m and an agreement to acquire four open cycle gas turbine (OCGT) development projects for electricity generation, as it said full-year earnings were still likely to be at the bottom end of market forecasts.

Shares in spreadbetting firms IG, CMC Markets and Plus500 tumbled as the Financial Conduct Authority announced plans to tighten rules around contract for difference products.