European shares rebound as budget hopes lifts Italian banks

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European shares rose on Wednesday as Italian banks rebounded on hopes Rome could compromise with Brussels over its budget plans and the battered tech sector recovered following a widespread sell-off on worries over iPhone demand.

The STOXX 600 <.STOXX> rose 0.5 percent in early trading, on course to snap a five-day losing streak that pushed the pan-European benchmark close to the nearly two-year low hit last month.

Germany's DAX <.GDAXI> index rose 0.9 percent and London's FTSE 100 <.FTSE> added 0.3 percent.

Italian banks <.FTIT8300> rose 2.5 percent after a report said Italy's deputy prime minister Matteo Salvini may be open to review the government's 2019 budget, fuelling hopes the country could avert a clash with the European Commission.

"This suggests an increased likelihood of an agreement and no excessive deficit procedure," said AFS Group analyst Arne Petimezas. The EU is set to take the first step on Wednesday towards disciplining Italy over its draft fiscal plan.

The broader European banking index <.SX7P> was the biggest sectoral gainer in early morning trading, up 1 percent, while tech stocks <.SX8P> advanced 0.4 percent.

Even though the rebound was broad-based with most sectors trading in positive territory, investors remained cautious over the outlook for the market due to lingering concerns over slowing economic and earnings growth.

Elsewhere, corporate updates triggered sharp share price moves. Babcock plummeted 12 percent after the British defence contractor took a one-off charge of 120 million pounds to reshape its business and warned that revenue from its nuclear decommissioning division would drop more than expected.

Indivior fell 8.7 percent after it warned it could take a hit if the rival drug from Dr. Reddy's Laboratories comes to market this year.

Johnson Matthey led gainers on the STOXX, up 8 percent, after the specialty chemicals company raised its full-year guidance.