LONDON, Aug 21 (Reuters) - A leading European share index rose to a 13-month closing high in thin trade on Tuesday, boosted by renewed speculation the European Central Bank would act to reign in a sovereign debt crisis in the euro zone.
Euro zone banks soared 2.7 percent and yields on benchmark Italian and Spanish bonds fell further as investors continued to speculate the ECB would intervene on the debt market to reduce borrowing costs for struggling countries.
The falling bond yields helped Italy's FTSE MIB climb 2.4 percent and outperform all other western European national indexes, led by heavyweight financials including UniCredit, big holders of the country's debt.
"There are many uncertainties but, still, the ECB is going to take a more active role concerning the debt crisis in Europe," Matthias Thiel, a capital markets strategist at M.M Warburg & CO in Hamburg.
"With the action of the ECB, (a euro zone break-up) is getting more unlikely. That means there is some potential that equity markets, in southern Europe especially, are going to rally further."
The FTSEurofirst 300 provisionally closed up 0.5 percent, at 1,110,77 points and has risen around 9 percent since the ECB's chairman, Mario Draghi, said late last month the central bank was prepared to do "whatever it takes" to save the euro.