MILAN/LONDON European shares inched up on Thursday, with blue chips in Milan taking the lead after better than expected Italian economic growth helped markets shrug off political worries.
Italy's economy grew 0.4 percent in the first quarter thanks to firm domestic demand, the statistics bureau said, sharply raising a preliminary estimate and improving prospects for the year.
The pan-European STOXX 600 index gained 0.4 percent, while Italy's FTSE MIB .FTMIB rose 1 percent after the data prompted renewed interest in Italian stocks as investors seemed to recover from rattled nerves earlier this week over a possible early election and the rescue of two ailing regional banks.
"The data is better than expected. It's good news," said Prometeia economist Stefania Tomasini. "The recovery is helped by an acceleration of household consumption while the slowdown to investment was a disappointment."
Italian banks .FTIT8300 rose 1.2 percent, having been among the hardest hit by this week's drop. UniCredit (CRDI.MI) rose 0.6 percent after HSBC raised its target on the stock on optimism about the heavyweight lender's restructuring plan.
"The first quarter results were the first chance we got to take a glimpse at execution with management able to tick all boxes ... At the same time, core revenues continue to perform well," HSBC analyst Jason Kepaptsoglou said in a note.
Adding to a healthier picture, Rome and the European Commission reached a preliminary agreement on a state bailout for problem bank Monte dei Paschi di Siena (BMPS.MI).
This contrasted with the mood in Spain, where Banco Popular POP.MC plunged 17.7 percent after a European watchdog warned EU officials the Spanish bank may need to be wound down if it fails to find a buyer.
Spain's IBEX .IBEX lagged European neighbors.
On the stock-specific level, praise heaped on Nokia (NOKIA.PA) by analysts boosted the phone company and helped push France's CAC 40 .FCHI up 0.8 percent.
Nokia shares rose 3.2 percent, adding to their gains since last week's resolution of a long-running patent dispute with Apple (AAPL.O).
A JP Morgan analyst said the telecom equipment market should provide the next leg of growth for Nokia, which on Wednesday re-launched its classic 3310 "brick" phone in its home market of Finland.
Fiat Chrysler (FCHA.MI) jumped 4.7 percent after its car sales in the U.S. exceeded expectations.
Clinical care company Elekta (EKTAb.ST) dropped 8.1 percent after it reported a surprise drop in fourth-quarter earnings and order intake.
In London, strength in large exporters helped the benchmark FTSE 100 .FTSE index inch back toward an all-time high.
Inmarsat (ISA.L) gained 4.8 percent, and France's SES (SESFd.PA) and Eutelsat (ETL.PA) also rose sharply on speculation they could be takeover targets, after sources said that Softbank would let its planned $14 billion merger between satellite startup OneWeb and Intelsat collapse.
Akzo Nobel (AKZO.AS) fell 1.2 percent after U.S. rival PPG Industries (PPG.N) said it would not launch a formal bid for Akzo after repeated informal offers were rejected.
(Reporting by Danilo Masoni and Elisa Anzolin Additional reporting by Vikram Subhedar; Editing by Susan Fenton)