August 29, 2019 / 7:21 AM / 23 days ago

Italian rally, trade hopes drive European shares to near four-week high

(Reuters) - Hopes of a resolution to a trade dispute between the United States and China pulled European stocks to a near one-month high on Thursday, while the prospect of a new coalition government in Rome sent Italian shares rallying.

The pan-European benchmark index STOXX 600 closed 1% higher as new comments from Beijing signalling willingness to continue trade talks with Washington calmed investors fears over the risk of a global recession.

China’s commerce ministry said both sides were discussing the next round of talks scheduled in September and hoped U.S. officials could cancel the planned additional tariffs to avoid an escalation.

Following that, U.S. President Donald Trump said in a Fox News radio interview that trade talks were scheduled for next Thursday “at a different level,” but did not provide additional details.

“Both of those things, despite being comments that markets have heard a thousand times before helped,” said Spreadex analyst Connor Campbell.

“Markets are so keen at this to hear positive news and just need reassurance that things are not just going to suddenly go south regarding the relationship between China and the U.S.”

Commodity-linked shares .SXPP rose nearly 2% to lead gains, while defensive plays like utilities .SX6P and healthcare .SXDP made the smallest gains.

The technology index .SX8P moved over 1% higher despite a sizeable drag from British IT group Micro Focus (MCRO.L) which tanked 31% after warning on profit, citing lower spending by clients.

French conglomerate Bouygues (BOUY.PA) jumped 7%, topping the STOXX 600 after reporting a better-than-expected first-half core operating profit.

The benchmark European index is on track to end August about 3% lower as a deeper inversion in the U.S. Treasury yield curve earlier in the week exacerbated concerns about economic growth in the face of the U.S.-China trade war.

POLITICS IN FOCUS

Italian stocks .FTMIB rose nearly 2% to hit its highest level since Aug. 2 as President Sergio Mattarella gave a green light to two former political enemies, the 5-Star Movement and Democratic Party (PD), to form a new coalition government headed by Giuseppe Conte as prime minister.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 29, 2019. REUTERS/Staff

The move was perceived by markets to reign in stability at the centre and could improve Italy’s fractious relations with the European Union.

In Britain, however, fears of a disorderly Brexit weighed on Britain's mid-cap index .FTMC, which underperformed the broader markets as Prime Minister Boris Johnson made his most audacious bid yet to take Britain out of the European Union on Oct. 31 by moving to suspend parliament on Tuesday.

Johnson’s move also increases the chance of him facing a vote of no-confidence in his government, and possibly an election.

Reporting by Agamoni Ghosh, Medha Singh and Amy Caren Daniel in Bengaluru; Editing by Bernard Orr and Arun Koyyur

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