European shares touched their highest level since the start of February on Tuesday as automaker and bank stocks climbed and Italian shares recovered as the anti-establishment coalition's government formation process stalled. The pan-European STOXX 600 rose 0.3 percent, extending Monday's gains as carmakers rose on a cut to Chinese tariffs.
Volkswagen, BMW and Daimler were among the biggest boosts to the STOXX, up 1.5 percent to 2.5 percent, after China said it would cut the import duty on passenger cars and auto parts from July 1. Europe's autos sector climbed 0.9 percent and Italy's Fiat Chrysler also rose 1.6 percent.
The latter helped Italy's FTSE MIB gain 0.5 percent and recover after being dragged down by political risk during the last sessions. Italian bank stocks also rose 1.6 percent as plans by anti-establishment 5-Star and the far-right League to form a government seemed to stall. President Sergio Mattarella sought further consultations over their proposed prime minister, a political novice.
Some investors were doubtful a coalition government would be able to go ahead with big spending plans that have spooked markets, sending Italian bond yields to their highest in more than a year.
"I don't know how long this coalition will last. There's an awful lot of negativity around it but I would be surprised if the coalition can go any meaningful distance," said Christopher Peel, chief investment officer at Tavistock Wealth. "Certainly Italy is a problem but geopolitical tension seems actually lower now than I can remember in a long time," he added.
French telecoms stocks were also key players during the session after the head of the country's telecoms regulator reignited talk of possible mergers in the sector, in comments to Le Monde newspaper.
Bouygues, Orange and Iliad rose 4.1 percent, 4.5 percent and 7.3 percent respectively. Shares of SFR's parent company Altice surged 19.2 percent but the move also reflected a technical adjustment of their price following the separation of Altice NV from Altice USA.
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