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European stock markets swung sharply higher Monday after exit polls showed Italy's centre-left was poised to win the general election, and traders largely brushed off a credit downgrade for Britain
Italy's FTSE-Mib jumped by 3.5 percent to 16,795 points after the first exit polls showed the centre-left led by Pier Luigi Bersani had a large lead over Silvio Berlusconi's party.
Democratic Party leader Pier Luigi Bersani has said he is the best man to help promote a growth agenda for Europe and "turn the page" after years of Silvio Berlusconi, who polls indicate could come in second.
The news also sent the yield on Italian 10-year bonds down sharply, to 4.232 percent, from 4.446 percent on Friday evening.
"Exit polls are showing that the market's worse case scenario could be avoided in that Bersani may have won a majority in the Senate," said Rabobank analyst Jane Foley.
The main Democratic Party led by Pier Luigi Bersani and its smaller leftist allies were ahead with between 34.5 and 37 percent, beating the 29 to 31 percent for a coalition led by the former prime minister Berlusconi, exit polls showed.
Billionaire and three-time prime minister Berlusconi, 76, had waged a populist campaign, blaming the Germans for Italy's economic woes and promising to refund an unpopular property tax to Italians.
Bersani had meanwhile pledged to continue with budget discipline if he won the election, to the delight of financial markets.
"Insofar as Bersani has pledged to continue with the reforms laid out by Monti, markets are viewing a Bersani-led government as the best prospect. A more optimal prospect would be a coalition with Monti appointing finance minister," added Foley.
After markets closed on Friday, Moody's stripped Britain of its triple-A debt rating, saying government debt was still mounting and that growth was too weak to reverse the trend before 2016 -- heaping more pressure on the pound.
In reaction, the price of British 10-year debt bonds fell slightly on Monday and the interest rate firmed slightly to 2.144 percent from 2.109 percent on Friday before the downgrade.
"The news is by no means unexpected, and sterling naturally has weakened...but not by as much as many would expect and that's purely because we've already seen the currency plummet in the run up to the announcement," said Angus Campbell, head of market analysis at Capital Spreads traders.
The pound hit $1.5073 in Asian trading hours -- the lowest level for 2.5 years. Britain's currency had reached similar lows last week on anticipation of a downgrade.
After hitting a fresh low-point on Monday, the pound recovered in trading in London to reach $1.5099, which compared with $1.5162 on Friday.
"Traders are likely to shrug off the downgrade as it has been priced-in for some time and more importantly, does not fundamentally change the UK's overall investment value," said Ishaq Siddiqi, market strategist at ETX Capital trading group.
In an expected rebuff to the British government's hopes that sharp spending cuts would both reduce its deficit and give growth a boost, the rating agency cut Britain's grade by one notch to Aa1.
Gold prices increased to $1,591.14 an ounce on the London Bullion Market from $1,576.50 on Friday.
-- BP shares down ahead of US trial --
In corporate news on Monday, BP shares climbed 2.2 percent to 453.7 pence, awaiting the start of a complex US trial to determine how much more the British energy giant should pay for the devastating 2010 Gulf of Mexico oil spill.
According to the Wall Street Journal, US authorities plan to propose a $16-billion settlement for civil claims.
BP has already resolved thousands of lawsuits linked to the deadly disaster out of court, costing the firm billions of dollars.
Shares in Pearson fell by 6.4 percent to 1,137.9 pence after the British publisher and owner of the Financial Times newspaper said annual net profit plunged by 66 percent in 2012 as its print business came under pressure from fast-growing digital media.
Profits after tax dived to £326 million ($493 million, 373 million euros) last year compared with net earnings of £957 million in 2011, while the group said it expected a tough 12 months ahead.
Asian stock markets mostly closed higher on Monday, with Tokyo surging after the yen hit a near three-year low against the dollar, while concerns eased that the US Federal Reserve could soon end its loose monetary policy, dealers said.
Investors in Japan cheered reports that the likely next central bank chief was in favour of aggressive monetary easing.
US stocks opened solidly higher Monday on expectations of continued economic stimulus measures by central banks.
The Dow Jones Industrial Average rose 0.38 percent to 14,053.78 in early trading.
The broad-based S&P 500 increased 0.54 percent to 1,523.83, while the tech-rich Nasdaq Composite Index added 0.59 percent to 3,180.54.
The increases followed comments Friday by St. Louis Federal Reserve President James Bullard that the US easy-money policy would continue.