UKX FTSE 100 Index

By Carla Mozee, MarketWatch

PostNL rejects bid offer; BMPS rallies

European stocks were trading at their highest in more than two months Wednesday, driven by a surge in bank shares on hopes of a state-backed rescue for struggling Italian lenders and as Credit Suisse said its restructuring plan is working.

The Stoxx Europe 600 index tacked on 0.7% at 346.93, on track for its highest close since Sept. 22, according to FactSet data. The index is set for its third day of gains after ending up by 1% on Tuesday (http://www.marketwatch.com/story/european-stocks-step-higher-as-banks-stage-a-revival-2016-12-06).

Financials and basic materials topped the sector gainers Wednesday.

Banks sustain rally: Among financials, bank stocks popped higher, led by a 6.5% climb for Credit Suisse Group AG (CSGN.EB) (CSGN.EB) . Those shares were on course for their strongest gain since April. Chief Executive Tidjane Thiam said the Swiss banking heavyweight's restructuring "strategy is working," after making more job cuts than anticipated. But the bank lowered some profit targets (http://www.marketwatch.com/story/credit-suisse-cuts-targets-says-revamp-is-working-2016-12-07) that it set last year, while holding to the goals it set for wealth management units.

In other moves, HSBC Holdings PLC (HSBA.LN) (HSBA.LN) rose 2.8% and France's Crédit Agricole (ACA.FR) rose 1.2%, holding to higher ground after EU antitrust authorities fined the banks and other lenders a total of EUR485 million (http://www.marketwatch.com/story/jp-morgan-other-banks-slapped-with-eu-fines-totaling-520-mln-2016-12-07) ($520 million), saying they participated in a cartel that aimed to steer a benchmark interest rate.

Meanwhile, Italian bank stocks pushed higher after reports Wednesday that the Italian government is taking steps to rescue Banca Monte dei Paschi Siena SpA (http://www.marketwatch.com/story/bmps-jumps-11-on-hopes-of-16-billion-rescue-loan-for-italian-banks-2016-12-07)(BMPS.MI) and other struggling lenders. Off the Stoxx 600, BMPS shares surged 9.6%. The FTSE Italia All-Share Banks Sector Index rose 4.7%, building on Tuesday's 9% rally.

Shares of Italy's BPER Banca SpA (BPE.MI) shot up 10% to top the Stoxx 600. Meanwhile, Italy's largest lender, UniCredit SpA (UCG.MI) , jumped 7.9%.

Worries about the health of the Italian economy and the integrity of the eurozone have grown after voters rejected Prime Minister Matteo Renzi's reform proposals. Renzi's resignation, announced after Sunday's referendum, is expected to be effective on Friday, according to Reuters.

Read:How Italy's 'no' vote might be the ECB's silver lining (http://www.marketwatch.com/story/how-italys-no-vote-might-be-the-ecbs-silver-lining-2016-12-05)

Also: The other loser in Italy's vote -- its big banks (http://www.marketwatch.com/story/the-other-loser-in-italys-vote-its-big-banks-2016-12-05)

ECB on deck: Investors widely expect the European Central Bank to extend its stimulus for the eurozone, including its bond-buying program, when it meets Thursday.

"Any hints that the central bank will be extending QE beyond the intended end date of March 2017 should be bad news for the euro, and good for [European] stocks, said Fawad Razaqzada, technical analyst at Forex.com, in a note. "Even if the ECB maintains status quo, the Fed could spark a rally in the dollar next week, which may undermine the euro-dollar and underpin European stocks."

The euro was trading at $1.0732, up from $1.0715 late Tuesday in New York.

Miners: Rio Tinto PLC (RIO) (RIO) (RIO) was a top performer Wednesday, with shares up 4.6% after Credit Suisse raised the diversified miner's rating to outperform from neutral.

Credit Suisse said it's maintaining a "positive view" on the mining sector, saying it expects "apparent demand trends to continue to recover following the aggressive destock through 2014-15," among other drivers for the industry.

Gains for mining shares helped lift the U.K.'s FTSE 100 by 1.5% (http://www.marketwatch.com/story/ftse-100-climbs-1-powered-by-mining-shares-2016-12-07).

Other movers: PostNL NV shares (PNLYY) tumbled 11% after the Dutch mail delivery company rejected a revised takeover bid (http://www.marketwatch.com/story/postnl-rejects-revised-bpost-buyout-proposal-2016-12-07-64852435) from Belgian postal service Bpost SA (BPOST.BT) . Bpost shares were up 0.4%.

(http://www.marketwatch.com/story/the-other-loser-in-italys-vote-its-big-banks-2016-12-05)Indexes: In Frankfurt, the DAX 30 index leapt 1.4% to 10,934.13, and France's CAC 40 index moved up 0.8% to 4,667.18. Spain's IBEX 35 rose 0.4% to 8,924.

(END) Dow Jones Newswires

December 07, 2016 08:23 ET (13:23 GMT)

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