European shares continue to rise as Italian worries recede

European shares rose for a second day on Tuesday, as investors continued to shrug off the political fall-out caused in Italy from the rejection of a constitutional reform referendum.

Instead, the focus remained firmly with the European Central Bank, which is widely expected to signal on Thursday that it will extend and ease the terms of its quantitative easing bond-buying programme by a further six months from March.

The STOXX Europe 600 Utilities index climbed 2 per cent higher.

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The Iseq index rose by 0.6 per cent to 6,270.64, with banking stocks among the top performers as Permanent TSB added 5.5 per cent to €2.70 and Bank of Ireland edged 3.1 per cent higher to 23.1c as nervousness about Italian lenders eased – for the moment at least.

While Irish banks have rallied strongly from their lows so far this year, Merrion Capital analyst Darren McKinley said they "remain undervalued", particularly as their lending margins are improving, while planned measures from the Central Bank and Government to ease mortgage restrictions for first-time buyers should boost lending activity.

“As property prices continue to rise by about 10 per cent, non-performing loans continue to decline at a rapid pace, with provision releases a common theme,” Mr McKinley said.

Independent News & Media shares increased 5.1 per cent to 12.4c as investors positioned themselves for a likely return of capital from the company after it received authorisation this week at an extraordinary general meeting to reorganise its capital structure.

Property stocks were also in demand, with Green Reit adding 2.1 per cent to €1.29, while Hibernia Reit gained 1.7 per cent to €1.20 and Irish Residential Properties Reit firmed by 0.9 per cent to €4.32.

Bucking the trend, Tullow Oil lost 4.6 per cent to €3.70 as oil prices slipped from a 16-month high as doubts emerged about how Opec will implement its first supply cuts in years, which was announced last week. Tullow's woes were compounded as Goldman Sachs downgraded its view on the stock to outright sell on valuation grounds.

LONDON

Britain’s mid-caps underperformed blue-chip peers, as spreadbetting firms’ stocks tumbled after regulators announced a planned crackdown on some of their products.

Britain’s financial watchdog proposed tougher rules for retail financial spread betting products known as “contracts for difference” (CFDs) after finding that 82 percent of customers using them lost money.

Mid-caps CMC Markets and IG Group both dropped more than 37 per cent, while Plus500 fell 28 percent.

The British mid-cap FTSE 250 was down 0.1 percent, while the FTSE 100 was up 0.5 percent at its close.

The blue chips were supported by a rally in bank stocks. Royal Bank of Scotland, Barclays and HSBC were the top gainers on the index, all up between 4.4 to 5.7 per cent as Morgan Stanley upgraded its view on HSBC to "equal-weight" from "underweight".

The mining and oil sectors, however, were among the biggest weights on the FTSE 100, as copper and Brent crude prices eased back.

EUROPE

Italy’s FTSE MIB rose 1.1 per cent, after finishing down 0.2 per cent on Monday following a “no” vote in a referendum on constitutional reforms in the country. Italian banks rallied 2.5 per cent on Tuesday to lift the index.

Italy's banking index fell hard early on Monday on worries that efforts to clean up bad debts and raise capital could be derailed after Italian prime minister Matteo Renzi said he would resign following the referendum defeat.

The rebound in Italian banking stocks came as some analysts dismissed the possibility of early elections, saying this would give Renzi’s successor time to tackle the troubled banks.

"Banks are up because markets believe the restructuring of the sector and the capital increases will go through as planned," said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels.

Banca Popolare Milano, Banco Popolare and Mediobanca rose 1.4 to 3 per cent.

However Banca Monte dei Paschi, which is looking to raise €5 billion this month to avoid being wound down, fell 2.8 per cent.

NEW YORK

Wall Street was little changed in choppy trading by early afternoon, as gains in bank and telecom stocks were offset by losses in utilities and materials.

The S&P 500 financial index rose 0.43 per cent, led by a 1.2 per cent rise in Wells Fargo. Chief executive Tim Sloan said at an investor conference that the bank's profits were likely to be hit in the short term by higher interest rates, but on longer term, the hike would be beneficial.

AT&T gave the biggest boost to the S&P 500, rising 1.3 per cent after chief executive Randall Stephenson told investors that the new streaming television service DirectTV Now has so far exceeded expectations.

Verizon also gained 1.3 per cent after striking a deal to sell 29 data centres to Equinix for $3.6 billion.

The Dow Jones Industrial Average was up 0.06 per cent, while the S&P 500 advanced 0.16 per cent, and the Nasdaq Composite rose 0.06 per cent.

( additional reporting Bloomberg)