European stocks close higher as Italian, Spanish indexes jump on political developments

Fears over Italy turmoil spread through global markets

Thursday's price action and continued recovery in the Euro after a steep sell-off earlier in the week indicates that investors have accepted that Italy has a problem, but that it may be a contained problem with less risk of contagion to the Euro Zone and nearly no risk to the global economy.

The 5-Star Movement and far-right League have dropped plans to take power and have switched to campaign mode.

The heavily-indebted nation found buyers for almost -6 billion ($7 billion) of its bonds on Wednesday, a sign that market fears that Italy could ditch the euro may be receding.

Following the veto, Lega leader Matteo Salvini threatened fresh elections which could have turned into a vote of Italy's confidence in the eurozone, with market players fearing it will become a de facto referendum on the single currency and Italy's role in the European Union.

The handover of power follows an inconclusive March election and months of political turmoil which had spooked global financial markets and spread unease among Italy's European Union partners. After it was over, reporters spotted Salvini walking out of the palace and asked him how long he thought the new government would last. However, gains were capped below $1,307 by a broadly stronger USA dollar.

Investors dumped Italian government bonds, driving borrowing costs sharply higher for the country and rekindling fears of more financial strain for Europe's third-largest economy.

Most analysts believe Italy will remain a member of the eurozone. The Japanese yen climbed 0.3 per cent to 108.49 per U.S. dollar, extending a 0.7 per cent climb to the strongest in five weeks.

The yield on 10-year bonds edged away from four-year highs and two-year yields, the focus of earlier attacks, also fell. The indexes were down 0.85 percent and 0.62 percent respectively.

After stripping out the volatile items of energy, food, alcohol and tobacco, inflation only rose to 1.1 percent from 0.7 percent. Many young people in Italy move to other nations.

While To-year Italian bond yields have soared to 3 over percent recent days, they are well below levels they hit at the height of Europe's debt crisis.

Italy's 2-year bond yield spiked some 80 basis points to 1.937 percent, its highest since late 2013, according to Reuters data.

Among national indexes, Italy's FTSE MIB bounced 1.5 percent Friday after President Sergio Mattarella approved a coalition deal for the country's populist parties.

The euro zone's banks index sank 2pc and was on track for its biggest monthly drop since the Brexit vote in June 2016.

ENERGY: U.S. crude oil fell 25 cents to $66.50 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price worldwide oils, rose 0.1 percent to $75.39 a barrel in London. It dropped 1.7 per cent to $66.73 a barrel in NY.

Gold fell 0.4 percent to $1,299 an ounce. The Kospi and the Shanghai Composite were both down around 0.58 percent just after noon in Hong Kong while the Nikkei 225 and Hong Kong's Hang Seng Index were met with steeper losses.

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