Europe open: Stocks rise as investors eye UK, Italy politics

European stock markets rose on Wednesday morning as investors welcomed the latest political developments in the UK and Italy, while news that Hong Kong's leader will withdraw a controversial extradition bill also boosted sentiment.

At 1110 BST, the Stoxx 6000 index was up 0.9% at 383.35, while Germany's Dax was 1.2% higher at 12,050.75 and France's CAC 40 was 1.1% firmer at 5,519.31.

Italy's FTSE Mib was the standout gainer, however, up 1.6% at 21,735.56 as the country appeared to be on course to welcome a new government after members of the anti-establishment Five Star Movement voted in favour of a proposed coalition with the centre-left Democratic Party.

Oanda analyst Craig Erlam said: "Giuseppe Conte will now get the go-ahead to form a new government and bring some stability back to Italian politics as it prepares its 2020 budget.

"While I don't expect Salvini to go down without a fight, this gamble has quite clearly backfired and he now must hope that he can maintain his popularity in opposition until the next election. There's no guarantee the current coalition will fare any better than the last, with them being long-term foes, and Salvini will be ready to pounce when the opportunity arrives."

In London, the FTSE 100 was up 0.4% at 7,300.46, while sterling was 0.9% firmer versus the dollar at 1.2184, having slipped below $1.20 in the previous session as MPs were set to vote on the Brexit delay bill.

Prime Minister Boris Johnson's government was defeated by 27 votes on Tuesday night as 21 lawmakers from his own ruling Conservative party voted with the opposition.

Having lost his slim majority in the Commons, Johnson said he would now table a motion calling for a general election.

Erlam said: "Recent developments, while not altogether unexpected, have slightly reopened the second referendum door if a new election sees the Conservatives under-perform. This has brought some reprieve to the pound, just as it slid below 1.20 against the dollar, although no-deal still appears the far more likely outcome in traders' eyes.

"There's surely a few more twists and turns to come this week, starting with votes today on the extension bill and then a new election, assuming Parliament backs the first as is expected. Sterling volatility is going nowhere."

Also helping to boost the mood was news that Hong Kong's leader, Carrie Lam, was set to formally withdraw the extradition bill that prompted months of protests.

On the macro front, data released earlier showed that growth in the eurozone services sector was better than expected in August but still modest.

IHS Markit's final eurozone services business activity index printed at 53.5, up from a flash reading and consensus of 53.4 and July's 53.2. This reflected an increase in new work and a sixth successive monthly fall in backlogs of unfinished business.

The services PMI for France increased to 53.4 from 53.3, while Spain also saw a jump to 54.8 from 54.4 the previous month. The services PMI for Germany rose to 54.8 in August from a six-month low of 54.5 in July.

The final composite output index for the bloc, which measures manufacturing and services activity, printed at 51.9 compared to a flash estimate of 51.8 and July's 51.5.

In corporate news, French defence electronics group Thales was on the rise as it reported higher first-half profits but cut its organic sales growth outlook for the full year due to a slowdown in the commercial space market.

FTSE 100 housebuilder Barratt Developments was in the red as it reported a 9% increase in annual pre-tax profit but cautioned that volume growth would be towards the lower end of its medium-term target range in FY20.

(Writing by Michele Maatouk; Editing by Frank Prenesti)