LONDON Italian banks shone in lacklustre European trading on Thursday after Unicredit's results indicated its turnaround was gathering pace.
Europe's STOXX 600 slipped 0.1 percent, while the eurozone's broader stocks .STOXXE and blue-chip indices .STOXX50E fell 0.2 percent.
Financials were a bright spot for the second day running, with Unicredit (CRDI.MI) up 4.4 percent after rising revenues and lower loan losses gave it better-than-expected first-quarter profits.
"We believe that strong headlines across the board on asset quality, capital and profit recovery should all support continued re-rating of the stock," said Jefferies analysts.
Italy's banking index .FTIT8300 tested its highest levels in more than a year as Mediobanca (MDBI.MI), Ubi Banca (UBI.MI), and Banco BPM (BAMI.MI) rose 1.8 to 3.5 percent. Italian blue chips .FTMIB outperformed their European peers, rising 0.3 percent.
"If the market wants to continue buying the reflation trade, Italian banks are the most sensitive to rising rates," said Antonio Guglielmi, head of equity markets at Mediobanca.
Hikma (HIK.L) shares fell 8 percent, making it the worst-performing European stock. Its flagship generic drug, Advair, suffered a setback in its approval by the U.S. Food and Drug Administration.
Telecoms stocks .SXKP were among the worst-performing, with BT (BT.L) down 2.5 percent after it announced 4,000 job cuts in a restructuring to recover from a year it called "challenging".
Shares in Britain's biggest telecoms company have not recovered from a 20 percent drop after it revealed accounting malpractices in Italy in January.
Spain's Telefonica (TEF.MC) fell 1.7 percent after its results.
Heat-pump maker Nibe Industrier (NIBEb.ST) was the top gainer, up 7.6 percent after its first-quarter profits beat forecasts.
Norwegian seismic surveyor TGS (TGS.OL) gained 5.8 percent after the U.S. Department of Interior said it would review applications from TGS and five other companies to conduct seismic surveys in the Atlantic Ocean, reversing its previous stance.
Broker downgrades weighed on some of the top fallers. Centrica fell 5.8 percent after JP Morgan cut it to "underweight".
Analysts at the bank said they saw "significant downside" emerging through price regulation of the standard energy tariff, a policy proposal announced by Prime Minister May on Tuesday, and emerging evidence of a 'price war' with competitor Engie.
A rating cut from Citigroup sent German reinsurer Hannover Re (HNRGn.DE) down 5 percent.
German commercial broadcaster ProSiebensat (PSMGn.DE) fell 5.3 percent after it reported a disappointing advertising outlook.
It dragged on media stocks .SXMP, which fell 1.3 percent, the top sectoral fallers.
European shares were underpinned by strong corporate earnings, with 20 percent earnings growth for the first quarter so far. Two-thirds of European companies have reported and 70 percent beat expectations, according to Thomson Reuters data.
(Reporting by Helen Reid, Editing by Vikram Subhedar)