Europe close: Investors breath sigh of relief as political tensions ease
European stock markets welcomed the latest political developments in the UK and Italy, the withdrawal of a controversial extradition bill in Hong Kong and news of fresh stimulus in China.
The Stoxx 600 index was up 0.89% at 383.18, while Germany's Dax was 0.96% higher at 12,025.04 and France's CAC 40 was 1.21% firmer at 5,532.07.
Italy's FTSE Mib was the standout gainer up 1.58% at 21,737.80 as the country appeared to be on course to welcome a new government after members of the anti-establishment Five Star Movement voted overwhelmingly 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 0.6% at 7,311.26, while sterling was 1.13% firmer versus the US dollar at 1.2215, having slipped below $1.20 during the previous session as MPs were poised 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 to take control of the parliamentary timetable and introduce a bill to prevent a no-deal Brexit
Having already lost his slim majority in the Commons, the new Prime Minister said he would now table a motion calling for a general election.
Joshua Mahony, market analyst at IG, said: "The anti no-deal coalition are clearly emboldened by their growing strength, with Johnson’s calls for a general election expected to be rebuffed until anti no-deal legislation is passed. Ultimately, the circumstances leave plenty of room for a disorderly exit, with the prospect of a Corbyn-led period of extensions and uncertainty not the most exciting prospect."
"There is no doubt that any general election would be difficult to call, and thus while a lifeline has been provided for the pound, Boris Johnson still remains the favourite, with a no-deal now seemingly the default outcome."
Also helping to boost the mood was news that Hong Kong's leader, Carrie Lam, was set to formally withdraw the extradition bill that had triggered months of protests.
In the background, China's state council signalled that a further reduction in the reserve requirement ratio for the country's lenders was in the pipeline.
On the European 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 for 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.
Meanwhile, Eurozone retail sales were in line with consensus as they fell by 0.6% month-to-month in July, with the drop driven by a 2.2% fall in sales in Germany after an 8.3% slide in clothing sales.
In corporate news, French defence electronics group Thales jumped 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.
Berlin-based Delivery Hero saw its share price drop 2% despite registering a 61% jump in orders and 98% revenue growth at constant currency in its interim results.
Due to their reliance on Chinese consumers visiting Hong Kong, European luxury stocks were also trading higher, with LVMH, Kering, Hugo Boss and Swatch Group all climbing.
Other beneficiaries of the news out of Hong Kong included insurer Prudential and HSBC, with both having a major presence in the former British territory.
On the downside, FTSE 100 housebuilder Barratt Developments was in the red, dropping by 4% 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.