European equities rally despite Italy woes

European stock markets rebounded on Wednesday as dealers shrugged off tense political turmoil in Italy.

In late morning deals, Milan's FTSE MIB index of major companies rallied 1.8 percent, as Italian President Sergio Mattarella began talks with key players in a bid to end political limbo in the eurozone's number three economy.

    The benchmark index had dived 1.1% on Tuesday as the shock resignation of Prime Minister Giuseppe Conte threw Italy into political chaos.

    Elsewhere on Wednesday, the Frankfurt and London stock market each won 1.1%, while Paris piled on 1.4%.

    "The markets have seemingly taken the latest political upheaval in Italy in their stride and are gaining," noted XTB analyst David Cheetham.

    Euro turns flat

    However, the European single currency flatlined against the dollar as Italy's latest crisis offset hopes that Germany's government could unveil measures to avert a downturn.

    Conte resigned this week, hitting out at far-right Interior Minister Matteo Salvini for pursuing his own interests by bringing an end to the government coalition.

    President Sergio Mattarella must now decide to form a new coalition or call an election, throwing up more uncertainty and another possible budget standoff with the European Union.

    "It is not clear whether or not the President will try and put a caretaker government in place at first - though it seems likely that Salvini will be given the reins sooner or later," Rabobank analyst Jane Foley told AFP.

    "The confusion, combined with Salvini's spending pledges, is potentially a negative factor" for the European single currency, she added.

    VTB analyst Neil MacKinnon was more downbeat in his assessment over the outlook for Italy.

    "There is an increasing risk of a fresh eurozone debt and banking crisis," he cautioned.

    Powell speech looms

    Aside from Italy, investors' focus was also turning to a key speech by Federal Reserve boss Jerome Powell at the end of the week.

    Powell's talk at the central bankers' gathering in Jackson Hole, Wyoming, is the key event and will be closely pored over for clues about the bank's plans for next month, with experts unable to agree on whether or not he will announce further cuts.

    Rising hopes for China-US trade talks have provided a much-needed lift to markets over the past two days but with few fresh catalysts, dealers are keeping their powder dry ahead of Friday's address.

    After positive signals from Donald Trump and some of his top advisers on Monday over progress in the talks with Beijing, and an olive branch with the delay of a ban on Huawei purchases, there have been few developments for traders to buy on.

    The Fed releases minutes of its July meeting later Wednesday which will provide an insight into its deliberations when it cut interest rates for the first time since the financial crisis.

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