European shares posted strong gains on Wednesday, helped by a successful bond auction in Italy and the U.S. Federal Reserve's defense of its asset purchases.
Almost all the major benchmarks in Europe closed higher on Wednesday, clawing back some of the previous session's sharp losses, after Italy managed to sell the top planned amount of 4 billion euros of 10-year bonds, as well as 2.5 billion euros of five-year bonds.
However, yields on the 10-year bonds reached their highest levels since October 2012.
Italian political parties are trying to find a way out of a stalemate situation after none of them won enough votes in this weekend's general election to have a parliamentary majority in the Senate.
Political tensions are already rising with the leader of Italy's protest "5 Star" movement, Beppe Grillo pouring insults on the leader of the center-left Democratic Party Pier Luigi Bersani and calling him "a dead man talking."
Meanwhile, the European Commission released data on Wednesday which showed business confidence rose in the euro zone for the fourth straight month in February, providing an added boost to risk assets.
"Italian politics remain front and center, with the risk of continued instability unnerving global financial markets. We expect instability to persist near term, slowing the implementation of much-needed structural reforms," wrote Bank of America analysts in a note on Wednesday .
"For investors able to bear mark-to-market risk associated with the more complicated political context, we think it is too late to sell European risk in response to the Italian elections. We believe the case for selling risk outside the euro zone is even weaker."
In earnings news, Anheuser-Busch Inbev forecast a pickup in sales in Brazil and an easing of cost pressures. Shares rose 1.2 percent on the Brussels Stock Exchange.
Switzerland's biggest dedicated life insurer Swiss Life reported net profit that beat forecasts. It also confirmed its dividend and posted a better solvency ratio of 242 percent.The shares surged 8.7 percent.
Meanwhile, Franco-German defense firm EADS predicted higher profits in 2013 as it confirmed an upswing in 2012, driven by efforts to cut costs, and strong deliveries of passenger jets. EADS shares rose 5.72 percent on the news. U.S. rival Boeing posted results in January that also topped expectations.
British oil services firm Petrofac's 2012 full-year profit missed forecasts and the company spooked investors by failing to give a specific target for 2013. The shares fell 6 percent.
Britain's largest free-to-air broadcaster ITV posted a 13 percent rise in last year's earnings, helped by growth in non-advertising revenues. But the shares fell 2 percent.