European shares climbed on Wednesday, with the regional banking index hitting an 11-month peak after Credit Suisse announced further cost cuts and Italian banks surged in their best two-day run since mid-2011. The STOXX Europe 600 Banks index was up 2.3 percent after touching its highest level since January, supported by an 7.4 percent rise in Credit Suisse after the Swiss bank announced more than 1 billion Swiss francs ($991 million) in extra cost cuts.
Italian banks rose 4.4 percent after sources told Reuters that Italy was preparing to take a 2-billion-euro controlling stake in Monte dei Paschi di Siena as the lender's hopes of a private funding rescue faded following Prime Minister Matteo Renzi's decision to resign. "The market is betting on a systemic and once-and-for-all solution," analysts at Italian broker ICBPI said in a note.
Italian banks are now up nearly 14 percent since Monday's close, making their biggest two-day rally since July 2011. Shares in Monte dei Paschi rose 10.8 percent, a day after Italian banks jumped 9 percent on short-covering before a European Central Bank meeting this week and after Renzi said he would step down following his defeat in a referendum. He was to tender his resignation later on Wednesday.
"Two big political events have passed without calamity. The market is starting to digest the terrible level of politics in Europe and the focus has turned back to the economy," said Lorne Baring, managing director of B Capital Wealth Management. "European equities are cheaper than US stocks on valuation grounds and dividend yields are more attractive. It seems a geographical rotation is taking place now."
The European auto sector index surged 3.3 percent to their highest level since mid-January with investors lured by low valuations and a continued rotation into cyclical stocks. Traders said the mergers and acquisition activity also helped after Faurecia started talks to buy the automotive unit of French drone specialist Parrot. Miners were also in demand as their shares tracked metals prices, which rallied on signs that global manufacturing activity will return to a firmer footing next year.
Their gains helped the pan-European STOXX 600 to end up 0.9 percent, at its highest since end-September. In a broader market rally, several other regional share indexes attained new peaks. Germany's DAX rose to a one-year high while France's CAC hit its loftiest level in 11 months. Italy's FTSE MIB index rose to its highest point in more than 6 months.
According to a Reuters poll, European shares are expected to rise steadily in 2017, but analysts are cautious about possible shocks after a series of unexpected political upsets raised volatility this year. Healthcare stocks fell 1 percent after US President-elect Donald Trump said he would "bring down drug prices." Elsewhere, Dutch mail carrier PostNL slumped 13 percent, the biggest decliner in the STOXX Europ 600 index, after it rejected the latest take-over offer from Belgium's Bpost, citing political concerns.
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