European shares unflapped by ECB steps to counter bond rout

Italian bank stocks, which have taken a hard hit recently on fears about Rome's surging debt costs, trimmed some gains, but were still trading 4% higher as bond yields fell. Shares of euro zone banks have fallen sharply in the past week, hit by a selloff in southern European bond markets after the ECB said it saw no need to create a new tool to help weaker economies cope with rising borrowing costs.

European stocks briefly eased from their highs before gaining again on Wednesday after the European Central Bank's measures to temper a bond market rout disappointed some investors looking for a more decisive action.

After an unscheduled meeting, the ECB said it will skew reinvestments of maturing debt to help more indebted members and will devise a new instrument to stop fragmentation. An index of euro zone shares gained 1.8%, bouncing off lows hit after the statement. Euro zone banks climbed 2.7%, but were off highs hit earlier in the session.

"The ECB has demonstrated it is serious about tackling those soaring prices, which have sent markets into a tailspin of late, but markets aren't convinced this special tool will be anywhere near powerful enough to do what needs to be done," said AJ Bell financial analyst Danni Hewson. Italian bank stocks, which have taken a hard hit recently on fears about Rome's surging debt costs, trimmed some gains, but were still trading 4% higher as bond yields fell.

Shares of euro zone banks have fallen sharply in the past week, hit by a selloff in southern European bond markets after the ECB said it saw no need to create a new tool to help weaker economies cope with rising borrowing costs. "Inflation in the eurozone will continue to rise throughout the summer and other economic data will remain stable," said Lloyd Harris, head of fixed income, Premier Miton Investors.

"This will keep the ECB under pressure to tighten monetary policy rapidly. The anti-fragmentation tool will be forthcoming at some point but is unlikely at this juncture." Meanwhile, the Federal Reserve will release its policy decision at 1800 GMT, with most traders expecting a bigger 75 basis point interest rate hike, following a hot U.S. inflation reading last week.

The STOXX 600 marked its sixth straight session of losses on Tuesday, hovering near a three-month low on worries that aggressive U.S. rate hikes will push the world's largest economy into a recession. Among individual stocks, Swedish medical equipment maker Getinge slumped 17% after cutting its sales forecast for 2022.

H&M, the world's second biggest fashion retailer, fell 4.3% despite posting a bigger-than-expected rise in quarterly sales.