Europe Markets: European stocks step higher, as banks stage a revival

European stocks edged higher Tuesday, as utility shares gained and as banks recovered from the fallout from this weekend’s referendum in Italy.

The Stoxx Europe 600 index SXXP, +0.30%  rose 0.2% to 341.86, but the advance was held back by weakness in key sectors: oil and gas SXEP, -0.39%  , basic materials SXPP, -1.37%  and industrial stocks.

On the upside, the utility sector logged the strongest gains, with Germany’s E.On SE EON, +0.94%  climbing 5.9% and RWE AG RWE, +3.75%  up 4.7%. A German court ruled on Tuesday that parts of the government’s nuclear phase-out law are unconstitutional, opening the door for utilities companies to sue for damages.

Another bright spot was Italy’s FTSE MIB I945, +1.40%  which added 1.2% at 17,245.72, erasing Monday’s slip of 0.2% . The Milan benchmark fell as low as 2.1% during that session after Prime Minister Matteo Renzi said he would step down, given the rejection of his constitutional reforms by Italian voters on Sunday.

Read: How Italy’s ‘no’ vote might be the ECB’s silver lining

Renzi‘s resignation was accepted, but he has been asked to stay on to oversee the passage of Italy’s 2017 budget.

Lenders revive: Bank stocks, which bore the brunt of the intraday selloff on Monday, brightened on Tuesday. The Stoxx Europe 600 Banks Index FX7, +1.89%  put on 1.7%, while the FTSE Italia All-Share Banks Sector Index IT8300, +3.06%  was up 2.5%.

Banca Popolare di Milano PMI, +1.45%  picked up 1.9%, Banco Popolare Societa Cooperativa BP, +1.68%  picked up 2% and Unione di Banche Italiane UBI, +3.69%  moved up 2.6%.

But shares of Banca Monte dei Paschi di Siena SpA BMPS, -3.05%  , which are not on the Stoxx 600, were down 3%. The world’s oldest lender is working to sustain its 5 billion-euro recapitalization plan, with the prospect of state aid being raised. The lender is expected to meet with European Central Bank officials on Tuesday, media reports said.

See: Monte dei Paschi advisers scramble for rescue plan

Italian banks have been a trouble spot in the European market this year as the industry grapples with more than €200 billion in bad debt. UBS said it has a neutral stance on eurozone financial shares.

“Until we get clarity on the recapitalization efforts in Italy and better earnings prospects for the sector, currently penalized by the low interest rates, we recommend a selective approach, focusing on banks that can generate higher profitability with a particularly compelling investment risk/reward,” wrote UBS in a note published Tuesday.

Read: The other loser in Italy’s vote — its big banks

Movers: IG Group Holdings PLC IGG, -31.83% shares plunged 31% after the U.K.’s Financial Conduct Authority said it plans to crack down on the sale of certain financial derivative products. The FCA said it’s concerned consumers are opening and trading products “that they do not adequately understand.”

Indexes: In Frankfurt, the DAX 30 index DAX, +0.22%  notched a 0.1% gain at 10,695.84, and Spain’s IBEX 35 IBEX, +1.40%  pushed up 1.3% to 8,776.

France’s CAC 40 index PX1, +0.36% moved up 0.2% to 4,583.45. France’s Prime Minister Manuel Valls said Monday he’ll run for president as the Socialist Party candidate, after party colleague and French President Francois Hollande said he wouldn’t try for a second term. Interior Minister Bernard Cazeneuve will take up the post of France’s prime minister until the country’s presidential elections next spring

The U.K.’s FTSE 100 UKX, -0.11%  was little changed at 6,744.97.

The euro EURUSD, +0.0279% was trading at $ 1.0768, not far from where it traded late Monday in New York. During the Monday session, the shared currency hit a 21-month low after the outcome of the Italian referendum, before bouncing back to log its best day against the dollar since early June.

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