European benchmarks rose for a third day running on Wednesday on continued speculation that Monte dei Paschi (BMDPY) will soon be rescued by the Italian government. Hopes that the European Central Bank might extend its quantitative easing program, or at the very least, sound a dovish tone at Thursday's press conference also helped to lift European stocks.
German stocks led the charge, followed by the FTSE 100, Italy's FTSE MIB and France's CAC 40.
Germany's equity benchmark touched 10,969 in Frankfurt, led by a 5.4% gain for Deutsche Bank (DB) - Get Deutsche Bank AG Report , which traded at its highest level since April 29. Rival Commerzbank (CRZBY) also added to session gains, rising 3.6% to €7.26, taking the two-day advance past 10%.
The Stoxx 600 Banks Index, the broadest measure of European bank shares, was quoted 2.16% higher at 169.66 by 16:30 GMT, the highest since Jan. 13.
The FTSE 100 gained 1.8% for the session, boosted by strong gains among banks and miners, to close at 6,902.4.
Italy's La Stampa newspaper reported Wednesday that the government was planning to ask the European Stability Mechanism, the region's permanent bailout fund, for a €15 billion ($16.1 billion) loan that would be used to effectively nationalize Banca Monte dei Paschi.
The speculation helped lift Italian bank shares, which have been suffering from investor concern over the state of their balance sheets, which recent Bank of Italy data suggests could be as high as €360 billion.
Italy's FTSE MIB index, the country's equity benchmark, traded 1.6% higher Wednesday, led by a 3.6% gain for the FTSE Italy Banks Index.
France's CAC 40 index was some 1.4% higher for the day, to close at 4,694.4, a 2016 high for the Parisian benchmark.
In individual stocks, Italy's Monte dei Paschi jumped by more than 11% during the session, after it reported that investors have now exchanged more than €3 billion of debts for new equity in the bank -- which should reduce the cash funding required for its rescue to around €2 billion.
In London, Rio Tinto (RIO) - Get Rio Tinto plc Sponsored ADR Report gained more than 6% for the session as mining stocks rallied strongly in response to recovering risk appetite among investors. Anglo American (NGLOY) also gained more than 4% for the session.
In Paris, banks and automakers were the order of the day, with Peugeot (PEUGF) and Societe Generale (SCGLY) featuring prominently at the top of the board. Peugeot gained more than 4% while Soc Gen rose more than 3.5%.