Top Stories
Top Stories
Wires

UPDATE 2-European stocks driven higher by car-makers

Aaron Saldanha

* Auto stocks outperform, broker ratings help

* Italian benchmark, bank stocks rise on prime minister's comments

* European tech stocks pare losses but end lower

* Sources say U.S. gov't preparing to investigate some U.S. tech firms (Updates to close, recasts, adds quote, graphic)

June 4 (Reuters) - European shares rose on Tuesday to distance themselves further from a 3-1/2 month low hit during the previous session, aided by auto stocks which gained on broker recommendations.

The region's exchanges shook off early weakness from the technology sector, which trimmed losses to end 0.2% lower. Sources said the United States is gearing up to investigate whether giants including Facebook Inc and Amazon misused their market power.

The STOXX 600 rose 0.7%, with Germany's DAX adding 1.5%, while the FTSE 100 gained 0.4%.

Stocks of auto-makers and their suppliers saw their best day in more than two months, rising 3.2%, with brokerage RBC starting coverage on a slew of names in the sector.

"The best performing stocks in Europe today have a short squeeze flavour, but equally a lean toward value-style bargain hunting ... auto parts (are) also rallying," said a trader, pointing to Hella and Continental AG, which surged 5.4% and 3.2%, respectively.

Daimler gained 4.1%, supported by RBC starting coverage with an "outperform" rating.

Volkswagen, which RBC also rated "outperform", added 3.3%. Sources told Reuters the firm is likely to launch the sale of transmissions maker Renk in the autumn, aiming to free up funds to invest more in electric vehicles.

Italy's FTSE MIB and the country's banks rose 1.8% and 2.4%, respectively. Yields on the sovereign's bonds fell as traders cited comments by Prime Minister Giuseppe Conte, who said the government had to abide by EU budget rules until such time as they could be changed.

Lenders in Italy have been under pressure over the last month, hurt by the country's differences with the European Union, a possible 3 billion euro ($3.37 billion) fine and concerns about its debt burden.

Europe's banks rose 2.1%. The sector's juicy 5.9% dividend yield, as per Refinitiv Eikon data, makes it a far riskier holding compared to safe-haven German bonds, whose yields are negative up to at least the 10-year maturity.

There is growing speculation the European Central Bank could shift to a more dovish footing at next week's policy meeting, albeit leaving rates unchanged.

Food and beverage stocks fell 1%, with losses led by Oslo-listed fish farmer SalMar ASA and seafood processor Mowi ASA dropping 5% and 2.6%, respectively.

($1 = 0.8898 euros)

(Reporting by Aaron Saldanha in Bengaluru, Helen Reid in London; Editing by Catherine Evans)