LONDON: European shares recovered on Wednesday after a two-day drop, with Italian stocks outperforming ahead of Rome's announcement of a technocrat-led cabinet and after the European Central Bank was seen buying Italy's government bonds.
Concerns over the debt problem in Italy, the euro zone's third largest economy, pushed the country's 10-year bond yields to above 7 percent on Tuesday, a level which many deem unsustainable in the long run, and European shares lower.
However, yields on Italian 10-year benchmark government bonds fell 28.2 basis points to below 7 percent at 6.852 percent, easing some worries for equity investors, after traders cited the ECB bond buying.
By 0907 GMT, Italy's blue-chip FTSE MIB rose 1.7 percent, with UniCredit up 2.8 percent.
Traders also cited Prime Minister Mario Monti's plans to unveil his new government, which is seen as an essential step to tackle the country's debt problem, as reason for the change in sentiment.
"It is rising on the Monti factor. He will present his ministers at 11 (1000 GMT). Bonds spreads are all over the place and volumes are low. (The yield) is still at 6.9 percent. It is still a bad level," a Milan-based trader said.
The more upbeat mood lifted euro zone bank shares, which have been battered this year on concerns that the debt problems would lead to heavy losses for banks and potentially a banking crisis. The euro zone banking index rose 1.7 percent.
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