MILAN/LONDON European shares staged a modest recovery on Friday after suffering heavy losses this week prompted by political turmoil in the United States that fuelled worries over President Donald Trump's stimulus plans and dented appetite for riskier assets.
The pan-European STOXX 600 index rose 0.6 percent, not enough to turn it around from its worst week in six months. Britain's FTSE .FTSE and euro zone blue chips .STOXX50E also gained 0.4 and 0.7 percent respectively.
While gains were spread across all sectors, financials - among the most hit by this week's sell-off - gave the biggest boost to the STOXX with heavyweight banks BNP Paribas (BNPP.PA) and UniCredit (CRDI.MI) up 2 percent.
Spain's Banco Popular POP.MC jumped 10 percent after sources said Santander or Bankia were likely to acquire the bank, which is struggling to clean up soured property assets.
The bank propelled Spain's IBEX .IBEX up 1.4 percent.
Among the biggest movers was airport retailer Dufry (DUFN.S), up 5 percent after luxury group Richemont (CFR.S) bought a 5 percent stake in the company.
German utility RWE (RWEG.DE) jumped 5.4 percent after sources said it was considering merging with France's Engie (ENGIE.PA). The firms are considering a share swap to create Europe's first truly cross-border utility.
Engie shares were up 0.6 percent, while RWE's majority-owned Innogy (IGY.DE) gained 3.4 percent on the news.
South African retail group Steinhoff (SNHG.DE) jumped 7.2 percent as investors gave a warm reception to plans to spin off its African retail business.
This week's losses have pulled the STOXX down from 21-month highs hit after a run driven by big inflows into Europe, solid economic data and surprisingly strong corporate earnings.
With 80 percent of European companies having reported so far, 65 percent of them have beaten expectations and 8 percent have met them, according to I/B/E/S data.
After the latest company updates, however, first-quarter earnings growth is seen at 19.4 percent, slightly below the over 20 percent previously forecast.
Easing fears about the euro zone's stability after the defeat of a eurosceptic candidate in the French presidential vote this month added fuel to the recent rally.
Flows data from Bank of America Merrill-Lynch showed investors remained strongly bullish on Europe, with the region's equity funds drawing inflows for the eighth straight week, while investors rushed out of U.S. stocks.
On the same front, some investors welcomed developments in Greece, where lawmakers approved further austerity measures overnight, making more progress towards unlocking bailout funds.
"No doubt averting another Greek crisis or at least another stand-off between the Greek government and its creditors should help stocks," London Markets trader Markus Huber said.
Athens stocks .ATG were up 0.2 percent.
Elsewhere, companies with exposure to Brazil such as Casino (CASP.PA), Telefonica (TEF.MC) and Telecom Italia (TLIT.MI) steadied following losses in the previous session triggered after a bribery scandal hit the country's president, darkening the outlook for structural reforms there.
(Reporting by Danilo Masoni and Helen Reid; Editing by Gareth Jones)