By Jon Sindreu and Riva Gold 

European stocks advanced while the euro recovered from early losses Monday, as investors shrugged off Italian voters' rejection of a constitutional referendum.

The Stoxx Europe 600 rose 1.3% midmorning with every sector in positive territory, while Italy's FTSE MIB index reversed early losses to advance 1.2%. Futures pointed to a 0.4% opening gain for the S&P 500.

Investors had widely anticipated the result of Sunday's referendum and subsequent resignation of Prime Minister Matteo Renzi, and consequently sold Italian equities, bonds and the euro in the weeks leading up to the vote.

"For the first time, the polls were clearly expecting that result," said Igor de Maack, fund manager at DNCA Investments.

Some investors expressed relief the result was out of the way, while many were also hopeful a caretaker government in Italy would calm concerns about political stability in the country and its ongoing efforts to restore the health of the banking sector.

Given Italy's history of changing governments, the news "will not change the challenges of the eurozone or the challenges of Italy," Mr. de Maack said.

Italian bank stocks had initially come under pressure as markets opened, amid concerns that a period of political turmoil could interfere with planned capital raising.

Those concerns appeared to ease quickly, however, sending even the FTSE Italia All-Share Banks index into positive territory. Shares of troubled lender Banca Monte dei Paschi di Siena were up 0.3% after initially failing to open. Shares of Banco Popolare di Milano were off over 2.1% in morning trading, while UniCredit fell 3%.

The wider Euro Stoxx Banks Index was up 0.7% after initially dropping.

In currencies, the euro was last down 0.3% against the dollar at $1.0637--a marked recovery after falling to its lowest since 2015 as the votes came in.

The result is considered a blow to Mr. Renzi's reformist pro-European government, while strengthening the populist and anti-euro 5 Star Movement, currently Italy's largest political opposition.

Some investors had been worried that the larger-than-expected margin of victory for the "no" campaign could bolster support for populist parties on the continent ahead of elections across the eurozone in 2017. While much of the euro's recent drop is due to a stronger dollar, analysts point to the Italian referendum as a key factor.

"It is tough to say how much more the Italian political uncertainty will weigh on the euro until we know if we can rule out the possibility of snap elections being called before the electoral law has been changed," said Jordan Rochester, strategist at Nomura.

Some relief for the euro may have also come from Austria's rejection of an anti-immigrant populist in its presidential election earlier this weekend. Center-left candidate Alexander Van der Bellen beat back a challenge from his right-wing opponent Norbert Hofer, winning 53.3% of the vote in the country's runoff election, according to a final count of votes cast on Sunday and a projection of mail-in ballot results.

In government bonds, the yield on 10-year Italian government bonds rose as high as 2.063% early Monday before retreating slightly to 2%, after the spread over German debt widened to a two-year high--an indication that fears about the integrity of the eurozone are on the rise, but still much below where they were during the euro crisis of 2010 to 2012.

Earlier in the day, shares in Asia mostly declined amid concerns the result of the Italian referendum could trigger a selloff in Europe's banking shares that would ripple world-wide. Japan's Nikkei Stock Average fell 0.8%, while stocks in Shanghai fell 1.2% and stocks in Hong Kong shed 0.3%.

In commodities, Brent crude oil rose 0.8% to $54.91 a barrel, while copper prices rose 1.1% to $5,853 a ton. Gold was down 0.9% at $1,167 an ounce.

Anton Troianovski contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com and Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

December 05, 2016 05:21 ET (10:21 GMT)

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