By Helen Reid
LONDON (Reuters) - British shares edged up on Monday after relief about Italy's budget preparations supported stocks across Europe, with banks the biggest gainers, while mid-cap packaging company RPC surged on news of takeover talks with private equity firms.
The FTSE 100 <.FTSE> was 0.2 percent higher by 1017 GMT, starting the week on a stronger footing after having hit a near five-month low on Friday.
Investors' increasing optimism that the Italian government's 2019 budget will respect EU fiscal rules pushed up the banks index across Europe, and British banks Barclays <BARC.L> and Lloyds <LLOY.L> fared particularly well.
Packaging firm RPC <RPC.L> was top of the FTSE 250 and STOXX 600 indices, soaring 20.8 percent after the company said it is in talks on a possible sale to Apollo Global Management and Bain Capital.
The announcement came "with the important caveat that neither of these approaches might result in an offer," said Peel Hunt analysts.
"The next month will be pivotal for RPC," they added. "If there is no bid, the bears will take hold, while if there is a bid we expect it to come at a healthy premium to Friday's close of 684p."
AB Foods <ABF.L> shares fell 1.8 percent after the Primark owner maintained its full-year guidance but like-for-like sales declined more than expected.
"A mixed trading update from ABF, with 2018 outlook being held, but more modest commentary from the company on 2019," said Berenberg analysts.
"This was not wholly unexpected given FX movements and commodity sugar price weakness, but another year of modest space expansion at Primark is disappointing," they added.
In the small-cap space department store operator Debenhams <DEB.L> suffered a sharp fall, while the small-cap index was down 0.3 percent overall.
Weekend reports that management has called in KPMG to advise the company on its options sent Debenhams shares plunging down 15 percent to their lowest ever level.
"...given the weakness in the share price and the recent acquisition of House of Fraser, we must consider the possibility that Mike Ashley's Sports Direct - which has a near 30 percent stake in Debenhams - will swoop," said Neil Wilson, analyst at markets.com.
(Reporting by Helen Reid; Editing by Gareth Jones)