European stocks closed mostly higher Wednesday but the rally lost steam after the EU ruled Italy was in breach of fiscal rules.
The pan-European Stoxx 600 closed provisionally up 0.3%, with utilities stocks making a nearly 1.3% gain while banks were one of a handful of sectors to fall into the red, slipping 0.5%.
Out of the major indexes, Italy's FTSE MIB was among the worst performers amid news that the European Commission had threatened disciplinary measures on the country over its rising public debt. The bourse was off by 0.35%.
Italian bond yields rose and bank stocks fell shortly after the conclusion that Italy's growing debt warrants disciplinary proceedings from the bloc. The country's banking sector dipped almost 2%, while the yield on the 10-year bond rose to a day's high of 2.6%.
Another main focus for investors Wednesday were recent comments from U.S. Federal Reserve Chair Jerome Powell. The Fed chief signaled the central bank was open to easing monetary policy, in comments that fueled speculation of a potential interest rate cut this year.
On Tuesday, the Fed Chair stated that the central bank would be keeping an eye on current developments in the economy, and would do what it must do, in order to "sustain the expansion." Powell did, however, note that the central bank could not determine when or how global trade issues would be settled.
On Wall Street, investors increased their bets the institution could lower rates soon, with the Dow Jones Industrial Average jumping almost 140 points. The and Nasdaq indexes were also in positive territory.
Meanwhile, trade turmoil continues to shake up market sentiment. During his state visit to the U.K., President Donald Trump reiterated his recent tariff threat on Mexico, telling reporters that his new policy would "take effect next week."
GOP senators have however, indicated that they do not necessarily agree with the 5 percent levy on all Mexican imports. Consequently, trade tensions and negotiations are expected to remain a hot topic for the foreseeable future.
Trump concluded his state visit to the U.K. on Wednesday before travelling to Ireland. Irish Finance Minister Paschal Donohoe told CNBC's Willem Marx that the country's open and globalized economy leaves it exposed to unpredictable taxes and tariffs.
Looking at economic data, composite and services PMI figures for the euro area showed the U.K. economy was close to stagnation due to uncertainty over Brexit, while Germany's services sector provided growth momentum for its cooling economy. French business activity strengthened in May.
In terms of individual stocks, Atos' payments division Worldline jumped over 6%, while French peer Ingenico climbed nearly 4%, after reports that Italy's SIA Group was eyeing possible merger deals with the pair.
Hargreaves Lansdown fell to the bottom of the Stoxx 600 with an almost 7% decline amid concerns over its hefty stake in the Woodford Equity Income fund, which was suspended Monday following a run of poor performance and investor withdrawals.