Hopes of Italy breakthrough ease European stocks tensions

Italian stocks have rallied following suggestions of a solution to the nation's political crisis.

    Italian President Mattarella will on Tuesday announce either a new coalition government or a snap election [Francesco Ammendola/Italian Presidential Press Office/Reuters]
    Italian President Mattarella will on Tuesday announce either a new coalition government or a snap election [Francesco Ammendola/Italian Presidential Press Office/Reuters]

    European markets eased off their lows on Tuesday, as Italian stocks rallied on hopes that a snap election could be avoided by an arrangement to form a new government in Rome.

    Milan's FTSE MIB rose 0.7 percent as the ruling 5-Star Movement and the opposition Democratic Party (PD) appeared on the verge of a deal after the latter indicated it had abandoned a veto on Giuseppe Conte serving another term as prime minister.

    Italian President Sergio Mattarella will on Tuesday announce whether a new coalition government is to be formed, or if the country is headed for a snap election in the autumn.

    "Markets are pricing in the prospect that we might not see new elections," said Michael Hewson, chief market analyst at CMC Markets in London.

    "Personally, I think any collaboration would in all likelihood be highly unpopular, and while it would keep the party in power in the short term, it would in all probability guarantee their electoral demise in the long term."

    The pan-European STOXX 600 index was down 0.09 percent by 08:05 GMT after paring losses of almost 0.3 percent, with London's FTSE 100 index slipping 0.4 percent.

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    British stocks - HSBC Holdings Plc, British American Tobacco and AstraZeneca - fell between 0.3 percent and 1.3 percent, and were the biggest drag on the STOXX 600.

    Could be worse

    Worries that major economies are on the brink of a recession has put the European market on pace to end August about four percent lower, but hopes that major central banks and governments would step in to counter the impact of trade war limited losses.

    Heightened US-China trade tensions drove a near 0.6 percent fall initially on Monday, but stocks stabilised to close marginally lower after US President Donald Trump predicted a trade deal with China.

    "There is noise about a slightly more emollient tone from President Trump towards China, but nothing has really changed. They've retaliated, the ante has been upped and things have gotten worse than where we were a week ago," said Hewson.

    In a bright spot, Flughafen Zuerich rose about four percent and was the biggest gainer on the STOXX 600, after the Zurich airport operator posted better-than-expected first-half results.

    SOURCE: Reuters news agency