The euro and Italian shares recover from an initial slump after Italian Prime Minister Matteo Renzi says he will resign following defeat in a constitutional reform referendum, as investors bet against an immediate snap election. Ciara Lee reports
They've endured a number of political shocks in recent months - and investors seem to be getting used to them. As Italian Prime Minister Matteo Renzi faced up to a crushing defeat in a referendum on constitutional reform - European shares rose to their highest level since late October. The broader market was underpinned by gains in banks as investors snapped up bargains in the battered sector. Germany's DAX rose significantly and the euro rebounded to pre-referendum levels, recovering from a 20 month over night low. (SOUNDBITE) (English) RESEARCH DIRECTOR AT CITY INDEX, KATHLEEN BROOKS, SAYING: "We actually don't know what it means. Yes the prime minister has resigned, there's going to be a technocratic government. If there are early elections that could be quite bad for risk assets but I think right now, markets are looking on the bright side." But there is concern over what happens next to Italy's troubled banks. The country's banking index fell as much as 4 percent in early deals on fears that efforts to clean up bad debts and raise capital could be derailed. The index has lost about half of its value this year - but it too brushed off concerns in morning trade, regaining initial losses and even briefly turning positive. Renzi's resignation has raised worries of early elections in 2017. (SOUNDBITE) (English) PROFESSOR OF POLITICAL SCIENCE AT LUISS UNIVERSITY, GIOVANNI ORSINA, SAYING: "I don't think that the result of the referendum is going to be a crucial factor in the future of Italy in the international scene and in Europe. I think this is just one sign post along the road, one step on a much more complicated road. One pressing issue though is the future of lender Monte dei Paschi - its 5 billion euro rescue plan is now hanging by a thread. Saddled with bad loans, the bank needs to raise the money by the end of the month to avoid being wound down.