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Euro zone stocks close higher as Brexit tensions ease; sterling climbs

Euro zone stocks closed higher on Tuesday as uncertainty over U.K. politics diminished with the imminent appointment of a new U.K. prime minister.

The pan-European STOXX 600 index closed around 1.2 percent higher, with most sectors in positive territory.

The French CAC closed unofficially up 1.6 percent with the German DAX index higher by 1.4 percent.

London's FTSE index saw marginal gains early in the session, before falling narrowly into negative territory. It closed provisionally down 0.1 percent.

European indexes

European Markets: FTSE, GDAXI, FCHI, IBEX

Sterling climbed during Tuesday's session, pushing towards $1.32.

"Sterling is leading the new appetite for risk as one element of political uncertainty (who will be the next U.K. prime minister) has been lifted," BBH analysts led by Marc Chandler said in a note on Tuesday.

Theresa May, who is currently home secretary, is set to be installed as prime minister by Wednesday evening, replacing David Cameron.

U.K. homebuilder and banking stocks rose, with Taylor Wimpey closing up around 3.2 percent, Barratt Developments up 2.8 percent and Barclays up 1.8 percent.

In other U.K. news, Bank of England Governor Mark Carney was questioned by the Treasury Select Committee on Tuesday and denied allegations that the central bank crossed the line of independence in the run-up to the U.K.'s vote on leaving the European Union (EU).

Autos accelerate

Europe's best-performing stock sector was autos. German automaker Daimler closed up 4.4 percent after it posted a strong set of second-quarter earnings, with Mercedes Benz vans helping boost the bottom line. Other automakers helped prop up the sector, including Peugeot, BMW and Renault, which were all sharply higher.

Shares of retailer ASOS closed almost 4 percent higher after the retailer issued a trading statement in which it forecast full-year sales growth would be at the upper end of its guidance.

One of Tuesday's biggest losers was Norwegian lender DNB, closing around 7.6 percent lower after it warned of higher loan losses in 2016 due to weaker oil prices.

Japanese shares surged on Tuesday on hopes of more monetary stimulus late on Monday, which helped to weaken the .

The news out of Japan helped boost U.S. stocks on Tuesday.

Italian banks rise

EU finance ministers backed sanctions on Spain and Portugal for breaching European rules on budget deficit targets on Tuesday. The European Commission — the executive arm of the EU — now has 20 days to recommend if fines should be imposed.

This followed a meeting on Monday at which Italy was warned to play by the rules regarding bank bailouts. Italy wants to use public finances to recapitalize its ailing banks, but that would break European banking rules that require creditors to take losses too.

"We are working very hard with the (European) Commission, which is taking a very cooperative approach," Pier Carlo Padoan, Italy's minister of economy and finance, told CNBC on Tuesday.

"I am confident we will soon reach an agreement which will be in the best interest of Italy, of Europe and within the rules," he added.

Italian banks outperformed peers on Tuesday, with UniCredit closing up over 13 percent. This came after the bank revealed it had successfully listed 10 percent of its online brokerage FinecoBank at 5.40 euros ($5.98) per share, enabling it to pocket 328 million euros, according to Reuters.

UniCredit's rise boosted other Italian lenders including Mediobanca, UBI Banca and Intesa Sanpaolo.

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Correction: This article has been corrected to reflect the market moves relate to Tuesday