Italian shares pull back European market amid concerns about budget deficit

Italian stocks fell more than half a per cent on Tuesday, pulling European stock markets lower, as concerns about the country's budget deficit overshadowed news of talks on a merger of Fiat-Chrysler and Renault.

By 0725 GMT, the pan-region STOXX 600 was roughly flat, undoing earlier gains, while Milan's bank-heavy FTMIB index fell 0.6%. Sources told Reuters on Monday that the European Commission was likely to start disciplinary procedures against Italy next week for breaking European Union debt rules, pushing bond yields higher and adding to worries for banking creditors.

London's FTSE 100, however, rose 0.3% as mining company shares gained on the back of a rise in Chinese iron ore prices. In a light day on corporate news and absent new headlines on U.S.-China trade issues, auto stocks built on Monday's gains on hopes of a Fiat Chrysler-Renault merger. Both carmakers climbed more than 1%.

French Finance Minister Bruno Le Maire said France must protect its own interests and jobs in any merger between the two companies, even though France's stake in Renault would automatically be diluted.