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Europe markets close mainly higher but Italian stocks slide on political concerns

Key Points
  • Italy's right-wing Lega party denied reports that it's seeking a 250 billion euro debt write-off.
  • Italian bond yields hit 10-week highs.
  • The euro was pulled lower by the Italian uncertainty.

Shares in Europe closed higher on average Wednesday despite surging interest rates for Italian debt in the bond markets.

European Markets: FTSE, GDAXI, FCHI, IBEX

The pan-European Stoxx 600 closed provisionally up by 0.29 percent with the various sectors moving in different directions. More notably, the main Italian index fell 2.4 percent on concerns over its future government.

The FTSE 100 closed Wednesday provisionally up by 0.26, while Germany's Dax rose 0.18 percent and the French CAC40 ended higher by 0.3 percent.

The Italian right-wing Lega party denied reports that it's seeking a 250 billion euro ($296.16 billion) debt write-off if it becomes part of a power-sharing deal with the anti-establishment Five Star Movement (M5S). But those efforts were not enough to dampen concerns over its economic future.

Late afternoon London time, Italian yields bond yields spiked while the euro shed around half a percent against the dollar. The 10-year bond yield rose 16 basis points, its biggest daily rise since November 2016.

Across the European index, Saipem bucked the struggle of fellow Italian companies to finish up by almost 12 percent. This followed a rating upgrade. Micro Focus lost some of its initial strength at the open to trade just above 6.2 percent by the end of the session. This was also after a positive trading update.

Alstom also rose across the day, up by 3.8 percent. The company reported that net profit rose by around 60 percent for its fiscal year.

On the other hand, French firm Elior recorded its worst one-day percentage fall since November 2017, according to Reuters. The shares fell near 14 percent after the firm issued a profit warning.

Market players were also digesting renewed geopolitical uncertainty related to North Korea. The country ditched plans for talks with South Korea due on Wednesday after joint military trainings between the U.S. and Seoul, Reuters reported.

At the same time, investors were monitoring the bond market after the yield on the 10-year sovereign rose to 3.09 percent on Tuesday, the highest in seven years. Higher yields mean higher borrowing costs for companies and thus fewer margins for dividends.

In terms of data, inflation numbers in Germany fell by 0.1 percent in April from the previous month, creating more headaches for the European Central Bank.

The IEA said in its latest oil market report that potential oil supply disruptions in Iran and Venezuela have led traders to shift their attention to geopolitics rather than fundamentals.