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European stock markets rebounded Wednesday on better-than-expected bond auctions in Italy, a day after stocks slumped on inconclusive elections in the debt-laden eurozone country.
Milan's benchmark FTSE MIB index of top companies gained 0.73 percent to 15,667.13 points in afternoon deals, having tumbled 4.89 percent on Tuesday as Italy's national election failed to produce a clear winner.
Elsewhere Wednesday, London's benchmark FTSE 100 index rose 0.27 percent to 6,287.69 points, as data confirmed that the British economy shrank 0.3 percent in the fourth quarter of last year.
Frankfurt's DAX 30 added 0.30 percent to 7,619.95 points and the Paris CAC 40 won 0.76 percent to 3,649.44, as dealers took their cues also from rising German consumer confidence and overnight gains on Wall Street.
Rome on Wednesday conducted a succesful auction of long-term debt that raised 6.5 billion euros ($8.5 billion).
But Italian government borrowing costs soared to their highest levels since October, Dow Jones Newswires reported, as post-election political deadlock increased the riskiness of the eurozone nation's debt.
Italy sold 2.5 billion euros of its four-year bond at a yield of 3.59 percent and a further 4.0 billion euros of a new ten-year bond at 4.83 percent.
Funding costs were the highest for both maturities since bond auctions in October, but the 10-year bond yield held below the 5.0-percent level which had been feared by markets.
"Equities have edged marginally higher as markets... react positively to an Italian debt auction that saw 10-year bonds placed at a yield of 4.83 percent," said CMC Markets analyst Matt Basi.
"Whilst the interest payable is significantly higher than in recent auctions as a result of the blurred political picture, fears of a 5.0-percent plus figure proved unfounded."
In foreign exchange deals, the euro firmed to $1.3095 from $1.3061 late in New York on Tuesday, when it had plunged to a seven-week low at $1.3018. That was a level last seen on January 7.
Investors remained hesitant after Italy's election left no party in overall control, raising concerns that uncertainty in Rome could see the eurozone return to the dark days of the region's long-running debt crisis.
"Talk about bad timing -- a bond auction two days after the close of the polls of one of the most uncertain elections in Italy's history," noted Kathleen Brooks, research director at trading site Forex.com.
"The government managed to sell the full allocation of bonds it had targeted, however the yield Rome had to pay was higher."
She added: "It makes sense from an investors' point of view: of course you should demand extra yield if the country does not even have a government."
Italian leftist leader Pier Luigi Bersani faces weeks of tough talks after admitting he had "come first but not won" key elections.
Final results showed that while Bersani's centre-left coalition had clinched the lower house, no party had taken the upper house.
A centre-right grouping led by irrepressible tycoon Silvio Berlusconi confounded all poll predictions by coming in an extremely close second in the vote for the lower house, winning 29.18 percent to Bersani's 29.54 percent.