Europe close: Stocks buoyed by hopes of new coalition government in Italy

Stocks finished higher on Tuesday with signs of progress on forming a new coalition government in Italy helping to offset the failure of stocks across to the Pond to follow through on the prior day's bounce amid the contradictory reports regarding recent US-China trade contacts.

According to ANSA, as of Tuesday afternoon it had emerged that Five Star party leader Luigio di Maio was not seeking to also take the post of interior minister and that the Democratic party, with whom they were negotiating, had lifted its veto against Giuseppe Conte, who served as Prime Minister in the previous government, repeating in that role.

By the close, the benchmark Stoxx 600 was higher by 0.63% to 373.62, alongside a rise of 0.62% to 11,730.02 for the German Dax while the FTSE Mibtel was ahead by 1.52% to 20,991.30.

In parallel, the yield on the benchmark 10-year Italian government bond had fallen by 19 basis points to 1.14%.

However, with the exception of Italy, equity indices across the Continent finished off their best levels of the day, dragged down a by weak start to the trading day in the US.

The day before, the US President had said that "China called last night our top trade people and said let's get back to the table" and US Treasury Secretary, Steve Mnuchin, reportedly added "there were discussions that went back and forth and let’s just leave it at that."

But according Chinese foreign ministry spokesmen Geng Shuang said: "I have not heard of this situation regarding the two calls that the U.S. mentioned in the weekend."

The country's vice premier, Liu He, did go on the record on Monday to say that Beijing hoped to resolve the trade war through "calm" negotiations.

"The claim that China wants a trade deal helped fuel yesterday’s rebound in US stocks, however the rally was half hearted at best," said CMC Markets UK's Michael Hewson.

Shares on Wall Street had staged a small bounce at the start of the week but failed to recoup the losses from the previous Friday's session.

"The claim doesn’t appear to have been verified from the Chinese side, however even if it had been its hard to believe that any progress will likely be made to stop the continued escalations," Hewson added.

The yield on the benchmark Italian 10-year note meanwhile was falling by eight basis points to 1.25%.

Against that backdrop, the prestigious IFO German business confidence index printed at a reading of 94.3 for August, versus a reading of 95.8 in July (consensus: 95.2).

With a separate gauge for manufacturing alone coming in at its weakest since 2009, IFO President, Clemens Fuest said: "not a single ray of light was to be seen in any of Germany’s key industries."

In France it was a different tale, with INSEE's manufacturing confidence index rising from 101.0 for July to 102.0 in August (consensus: 101.0), while overall business sentiment was steady in comparison to July.

A separate index for consumer confidence was also unchanged versus the previous month at 102.0.