Europe close: Stocks come off lows as Italian debt rallies

European shares managed to finish the session well-off their earlier lows, boosted by a rally in Italian government bonds, even as market participants eyed the US open to see if a bounce on Wall Street would "stick" and as the most up-to-date data underscored that investors in Italian government debt have been rushing to the exit.

"It is clear that the market has yet to decide whether it can resume its march higher or not, but the start of earnings season has gone well, providing one reason for optimism, while the firm defence of the lows last week sends another signal that there is still significant buying pressure out there," said Chris Beauchamp at IG.

"This might seem odd, given Brexit, Italy, trade wars and a US/Saudi spat, but the wall of worry is still intact, as good a signal as any for further upside."

Against that backdrop, by the end of trading the benchmark pan-European Stoxx 600 had trimmed its losses to stand just 0.12% or 0.43 points lower at 361.24, although a late wave of selling saw a recovery into positive territory erased.

Italian shares cut early losses after the European Union's Economic and Financial Affairs commissioner, Pierre Moscovici, called for a calm dialogue with Rome over its 2019 budget, triggering a rally in the country's bonds.

By the end of trading, the FTSE Mibtel was drifting 0.04% or 7.37 points lower to 19,080.16.

Meanwhile, in public debt markets, the yield on the benchmark 10-year Italian government note was down by ten basis points to 3.58%, but only after having earlier climbed to as high as 3.81%.

France's Cac-40 on the other hand finished the session down by a larger 0.63% or 32.13 points to 5,084.66, while the Dax was down by 0.31% or 35.38 points to 11,5553.83.

Spain's Ibex 35 also outperformed, although a wave of selling also knocked its lower just before the close.

Boosting share prices in Madrid, the country's Supreme Court said it might reconsider its decision from the day before to make lenders, and not borrowers, liable for paying stamp duty on mortgages.

Related to events in Italy, the European Central Bank reported that the euro area's current account surplus, which is roughly the excess of what it exports over what it purchases from overseas, widened from €19.5bn for July to €23.9bn in August, to stand at the equivalent of a hefty 3.3% of gross domestic product.

However, the so-called financial account revealed strong and continuing short-term capital outflows, which Claus Vistesen, at Pantheon Macroeconomics, believed were "almost certainly" to the "chaos" in Italian bond markets over the summer.

Investors were also monitoring events in Asia, with Chinese stocks bouncing back after the market regulator called for investors to remain calm following recent losses in the stockmarket.