Milan-listed shares outperformed skittish European bourses on Monday, helping a euro zone index touch a 5-1/2 year peak as the market welcomed signs that smaller Italian lenders are boosting their capital and winning over international investors. Broader sentiment was also supported by expectations of new stimulus measures from the European Central Bank, cemented by lower-than-forecast euro zone inflation data, although some portfolio rebalancing at the end of the first quarter triggered a late selloff.
Italian mid-tier banks Banco Popolare and Monte Paschi were among top risers on the STOXX Europe 600 index, up 15.8 percent and 4.9 percent respectively, compared with a 0.2 percent rise for the whole index. Banco Popolare was boosted by reports that it had attracted foreign investors to its capital increase, while Monte Paschi saw two big Latin American funds take stakes ahead of the bank's own cash call, a sign of growing confidence in the sector and in the Italian economy from international investors.
"This round of capital increases is seen as a reinforcing element for banks in the context of a more stable economic environment," said Roberto Brasca, who manages a pan-European equity fund for AcomeA and is overweight smaller Italian lenders. A raft of price target upgrades by investment banks boosted Italian lender Intesa Sanpaolo, which added 2.4 percent to feature among top risers on the Euro STOXX 50 index. The euro zone bluechip index hit its highest level since 2008 at 3,185.68 points before succumbing to some quarter-end profit taking to end 0.3 percent lower at 3,161.60 points. The pan-European FTSEurofirst 300 index rose 0.1 percent to 1,333.55 points, taking its quarterly gains to 1.3 percent.
Italy's FTSE MIB, up 0.9 percent on Monday, has outperformed both indexes so far this year as Italy emerges from a deep two-year recession and the new government of Prime Minister Matteo Renzi raises expectations of long-awaited economic and political reforms. Federal Reserve Chair Janet Yellen gave a strong defence of the US central bank's own stimulus policy on Monday, saying its "extraordinary" commitment to boosting the economy, especially the still struggling labour market, will be needed for some time to come.