Italian stocks recover on Wednesday as govt target target lower budget deficit

Italian stocks turned from a drag into a boost for European markets on Wednesday as signs the government would target a lower budget deficit quelled investors' fears of a damaging showdown with the European Commission.

Italian bank stocks jumped 3.1 per cent after government bond yields fell back and the spread to Bunds narrowed thanks to reports the government was targeting a lower budget deficit in 2020 and 2021.

Still, in the thrall of developments on the Italian front, the leading eurozone stocks index and the pan-European STOXX 600 both rose 0.3 per cent by 0720 GMT, with bank stocks the best-performing, up 1.1 per cent.

Italy's FTSE MIB outperformed, up 1.4 per cent.

Italy's biggest banks Unicredit and Intesa Sanpaolo were among the top gainers, up 2.6 per cent each, while Mediobanca, UBI Banca, and Banco BPM also rose as much as 5 per cent.

Outside of politics, Oslo-listed aluminium firm Norsk Hydro was the biggest faller, down 7.3 per cent after announcing it would shut all output from its Alunorte alumina refinery in Brazil.

Tesco shares fell 5.5 per cent after the UK's biggest retailer reported first-half profits which missed analysts' forecasts.

"Good like-for-like, but weak bottom line points to margin destruction," said a trader.

Shares in French tech consultancy Altran jumped 11 per cent to the top of the STOXX, with traders citing an upgrade from broker Kepler Cheuvreux.

The stock, down 40 per cent in the third quarter alone, is highly shorted, amplifying any positive moves as short sellers unwind their positions. 

(With inputs from agencies.)