UKX FTSE 100 Index

By Mark DeCambre, MarketWatch

Stoxx Europe 600 logs best single-session rise since April 5

Italy's benchmark on Tuesday notched its best day in about five weeks, while the pan-European benchmark produced its sharpest single-session advance in more than six months. However, U.K. stocks lagged behind during an otherwise buoyant session for European equity markets, amid brewing political turmoil that has continued to buffet markets.

A rally for U.S. stocks (http://www.marketwatch.com/story/us-stocks-poised-to-rise-after-mondays-tech-driven-selloff-2018-10-16) after a crop of upbeat earnings (http://www.marketwatch.com/story/dows-earnings-reporters-providing-a-92-point-boost-to-futures-rally-2018-10-16) also helped to drive investors toward assets perceived as risky, like stocks.

What are markets doing?

Italy's FTSE MIB Italy index climbed 2.1% to 19,687.10, registering its best daily gain since Sept. 10 when the index jumped 2.3%, according to FactSet data. The U.K.'s FTSE 100 , meanwhile, rose 0.4% to close at 7,059.40.

The pan-European Stoxx Europe 600 gained 1.6% to end at 364.99 (http://www.marketwatch.com/story/european-stocks-see-bounce-but-on-track-for-big-weekly-declines-2018-10-12), notching its best daily climb since April 5, marking its second gain in a row. Germany's DAX 30 rose 1.4% to 11,776.55, while France's CAC 40 rallied by 1.5% to close at 5,173.05. It as also the French benchmarks best day since early April.

The euro was off at $1.1574, compared with $1.1580 late Monday in New York. The pound was last changing hands at $1.3212, up from $1.3151 late Monday.

What is driving the market?

Italy's government late Monday approved a draft budget law for next year (http://www.marketwatch.com/story/italys-government-oks-draft-budget-that-would-widen-deficit-2018-10-15), confirming a set of measures that could lead to a fast-rising deficit but heightens a conflict with the European Union over the size and scope of its budget deficit.

The antiestablishment 5 Star Movement and the far-right League have rattled financial markets over the potential for a dust-up between Italy's government and the EU, which could prove disruptive to the integrity of the bloc.

The full draft budget law will be sent to the Italian parliament by Saturday. Lawmakers will need to approve it by the end of the year.

Rome's drafted measures are set to widen the budget deficit to 2.4% of gross domestic product or higher, in defiance of EU rules that require a shrinking deficit. The Italian government said it would raise welfare and pension spending and cut taxes, despite the negative reaction from investors and Brussels to its proposals.

Meanwhile, on Monday, U.K. Prime Minister Theresa May called for "cool, calm heads" as she described Britain's chances of striking a trade pact as it exist from the EU as "still achievable," in a speech in front of parliament.

May believes that a Brexit trade pact is "still achievable," while European Council President Donald Tusk warned in a letter to EU leaders on Monday warned that no-deal, in which no trade agreement is forged as Britain exits from the EU is "more likely than ever before."

A summit of European leaders in Brussels is set for Wednesday where it is hoped that a deal can be reached.

Separately, U.K. wage growth accelerated over the summer at the fastest pace in almost a decade, adding to signs of inflationary pressure, Tuesday data showed (http://www.marketwatch.com/story/uk-wage-growth-fastest-in-almost-10-years-2018-10-16-4485395). That news triggered a surge in the pound. (http://www.marketwatch.com/story/british-pound-rallies-after-wage-data-dollar-traders-await-treasury-report-2018-10-16)

Stocks on the move

Volvo AB(VOLV-B.SK) slumped by 4.4% after warning that engines in some of its trucks and buses may be exceeding emission limits for nitrogen oxide, and "the costs could be material." (https://www.volvogroup.com/en-en/news/2018/oct/news-3085515.html)

Drug majors were leading the gainers, with Novartis AG (NOVN.EB) and Roche Holding Ltd.(ROG.EB) up by at least 2% each.

On the downside, British American Tobacco PLC(BATS.LN) dropped nearly 5% after the company backed 2018 earnings targets, but cut expectations for revenue from tobacco-heating and vapor products. (http://www.marketwatch.com/story/bat-backs-earnings-target-for-2018-2018-10-16)

(http://www.marketwatch.com/story/bat-backs-earnings-target-for-2018-2018-10-16)-- Barbara Kollmeyer contributed to this report

(END) Dow Jones Newswires

October 16, 2018 12:50 ET (16:50 GMT)

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