Europe close: Stocks stabilise, but investors on edge

Stocks on the Continent advanced on Wednesday, led by an advance in Italian issues after news broke that the European Commission will not start an excessive deficit procedure against the government in Rome.

Nevertheless, investor sentiment was cautious ahead of the US central bank's policy meeting later in the day, with many analysts having come out to caution of the negative impact that an overly 'hawkish' Federal Reserve might have on financial markets.

"Overwhelmingly, markets are looking towards today’s FOMC meeting. The market is pricing in a 67% chance of a rate hike today, and Donald Trump’s attempted interference is likely to have pushed the committee towards a fourth 2018 rate rise rather than away from it," said IG's Chris Beauchamp.

"However, as much as the rate rise itself will be important, all eyes will be on the dot plot of future expected rate moves, with a shift towards a less hawkish 2019 outlook providing the basis for a potential dollar decline."

By the end of trading, the benchmark Stoxx 600 was higher by 0.31% or 1.06 points to 341.52, alongside a rise of 0.24% or 25.32 points on the German Dax to 10,766.21.

But the standout gainer was Milan's FTSE Mibtel, which jumped by 1.59% or 297.05 points to 18,941.90.

Stoking gains in the Mibtel, ANSA reported that Brussels had decided against opening infringement proceedings against the government in Rome over the public deficit targets included in its 2019 budget.

Citing European Union sources, ANSA said officials from both sides had reached a technical agreement on the country's budget the night before.

Also on a positive note, China's Ministry of Commerce said on Wednesday that officials from Beijing and Washington had held vice-ministerial talks on trade, amid preparations for face-to-face talks in January.

Elsewhere, Eurostat reported that construction output in the euro area shrank at a month-on-month clip of 1.6% in November.