Europe close: Markets attempt to clean up after Brexit

The benchmark Stoxx Europe 600 was last up 2.58%, while Germany’s DAX was 1.84% higher and France’s CAC had added 2.55%.

In London, the FTSE 100 had picked itself up by 2.64%, while the more domestically-focused FTSE 250 - the worst hit by the Brexit vote - added 3.58%.

In Italy the FTSE MIB was ahead by 3.3% as that country’s government considered a €40bn capital injection for banks.

The Stoxx 600 banks index, which has taken a hammering in the previous two sessions, was last up 2.36%.

Oil prices also advanced during the session - Brent crude was last ahead by 1.46% at $47.86 per barrel and West Texas Intermediate was up 1.72% at $47.14.

The lingering possibility of a strike in Norway underpinned crude prices throughout the day, as workers on oil and gas fields in the country could walk out from Saturday if a wage deal is not agreed.

On the currency front, sterling was making a small recovery after hitting fresh 31-year lows on Monday - it was last 0.65% up at $1.3311 per £1.00.

FXTM's chief market strategist, Hussein Sayed, said earlier that there seemed to be very little news to support the currency at present.

“David Cameron’s proposal yesterday not to trigger Article 50 will only lead to a prolonged period of uncertainty, exposing the pound to more downside risk.

“I would say another 5-10% drop from current levels can’t be ruled out in the next couple of weeks.”

The euro was last trading up 0.19% at $1.1046,after hitting a three-month low against the greenback amid the Brexit fallout.

Chancellor George Osborne said on Tuesday that the UK will have to cut spending and raise taxes in response to Brexit, as EU leaders met in Brussels.

European Commission President Jean-Claude Juncker said that Britain must “clarify its position” on the terms of its departure as soon as possible.

Juncker said in a speech to the European Parliament that a prompt statement of the type of deal Britain wanted was necessary to end uncertainty.

He reasserted the EU's position, supported by France and Germany, that there would be no informal talks with the UK before it invoked Article 50.

"We can not allow a long period of uncertainty.

“There can be no secret negotiations. No notification, no negotiation," he said.

Despite the upbeat tone in financial markets, some analysts were sceptical that gains could be sustained.

“While equity volumes are picking up, they are still below average and so bargain-hunting may be helping as opposed to emergence of genuine support as markets adjust to a new normal and the prospect of the UK outside the EU,” said Mike van Dulken, head of research at Accendo Markets.

In macroeconomic news from across the Atlantic, the third release of first-quarter US GDP growth came in at 1.1%, slightly higher than the 1.0% forecast and well ahead of the prior reading of 0.8%.

The S&P Case-Shiller Home Price Index was somewhat disappointing, coming in at 186.63 for April against a forecast of 186.71, though it was also ahead of the previous reading of 184.58.

US consumer confidence was well ahead of expectations at 98.0 for June, against expectations of 93.5 and well in front of 92.4 last time.

In corporates, defence and aerospace group Rolls-Royce was on the front foot after saying the UK's decision to leave the EU would not have an immediate impact on day-to-day business, adding that it remains committed to the UK “where we are headquartered, directly employ over 23,000 talented and committed workers and where we carry out a significant majority of our research and development”.

Housebuilder Redrow was sharply higher after saying it expects pre-tax profit for the year to be above the top end of analysts’ estimates, which currently stand at £240m.

Nestle rallied after it named Ulf Mark Schneider as successor to chief executive Paul Bulcke.