(Reuters) - European stock markets ended at a two-week high on Wednesday, led by a rebound in Italian shares and as investors bet more concrete signals of stimulus from central bankers may help allay global slowdown fears.
The pan-European STOXX 600 index ended 1.2% higher with Milan's blue-chip index .FTMIB rising 1.8%, bouncing back from a political crisis-driven sell-off.
The resignation of Italian prime minister Giuseppe Conte on Tuesday, had made investors nervous about Rome’s continuing lack of political stability, but also signaled that a new coalition arrangement may be in works.
Italy’s main opposition party, Democratic Party (PD), said on Wednesday it was ready to hold talks with the anti-establishment 5-Star Movement over forming a government following the collapse of the previous, populist coalition.
“The new majority would be considered a relatively more positive outcome for market sentiment compared to snap elections,” said ING analysts in a note.
On the corporate front, auto stocks .SXAP got a boost from reported merger talks between Fiat Chrysler .FCHA.MI and Renault (RENA.PA).
Italian newspaper Il Sole 24 Ore reported that talks between the French and Italian-American car makers may be back on the table, after a proposed multi-billion dollar merger, that was set to create the world’s third-largest auto company, collapsed in June.
The European auto sector has been hit by a global auto slowdown with car sales plunging as the sector battles with the transition to electric and other alternative-fuel vehicles.
“This is a great example of two companies getting together, saying that the environment is changing and we have to adapt It’s a continuation of a consolidation in the sector to survive in a changing environment,” said CMC Markets analyst David Madden.
Among individual stocks, Pandora A/S (PNDORA.CO) shares rallied for a second straight session, up 16%, with Wednesday’s move attributed by traders to a reported purchase of 24,400 shares by Chief Financial Officer Anders Boyer.
Interest-rate sensitive banks .SX7P made the smallest gains with lender-heavy Madrid stocks .IBEX lagging regional peers.
All eyes will be on the U.S. Federal Reserve’s Jackson Hole Symposium starting Thursday, where investors hope central bankers including Fed Chair Jerome Powell will tread a dovish tone.
Signs that governments and central banks are ready to step in with additional measure to boost cooling global growth have helped stock markets survive a volatile few weeks, but the pan-Europe STOXX 600 is still on course to end August lower.
Reporting by Agamoni Ghosh, Shreyashi Sanyal and Amy Caren Daniel in Bengaluru; editing by Patrick Graham and Alexandra Hudson