European stocks rise with eyes on Italy

European stocks markets advanced on Monday, building on a recent recovery, while investors were increasingly warming to indebted eurozone member Italy.

In foreign exchange trading, the British pound struck the highest point against the dollar for more than four years.

London's benchmark FTSE 100 stocks index gained 0.84 percent to 6,719.70 points in late morning deals.

Frankfurt's DAX 30 rose 0.13 percent to 9,674.70 points and in Paris the CAC 40 edged up 0.02 percent to 4,340.87.

Milan's FSTE Mib index gained 0.10 percent to 20,456 points and Madrid's IBEX 35 edged up 0.08 percent to 10,141.10.

"Having got off to a horrible start in the first two weeks of 2014, European equity markets last week posted their second successive weekly rise as concerns about economic growth and an emerging markets slowdown slipped into the background," said Michael Hewson, chief market analyst at CMC Markets UK.

"Rather perversely the rebound in optimism has been most noticeable in the two weaker economies in Europe, in the form of France and Italy, where we've seen the CAC 40 retest the high this year and Italy which has seen the FTSE Mib hit its highest levels since 2011, while Italian 10 year bond yields hit their lowest levels since 2006."

Italy's borrowing costs dropped to an eight-year low on Monday, after rating agency's Moody's raised outlook and as the country awaited a new, reform-driven government.

In mid-morning trading, the yield or interest rate indicated by trading in existing benchmark 10-year debt bonds fell to 3.651 percent from 3.687 percent late on Friday.

On currency markets, the pound stood at $1.6740, down from $1.6822 in Asian trading hours, which was the highest level since November 2009. The euro though gained to 81.86 pence from 81.76 pence on Friday.

The single currency rose to $1.3704 from $1.3695.

The British currency's march higher "may provide something of an issue for the Bank of England as the strong pound will certainly challenge the export industry", said Brenda Kelly, chief market strategist at traders IG.

"Despite (Bank of England) assurances that no interest rate hikes will take place until business investment and wage growth picks up, traders appear to be banking on monetary tightening sooner rather than later."

The price of gold was higher at $1,324.80 an ounce compared with $1,320 late in New York on Friday. Earlier Monday on the London Bullion Market, the precious metal reached a near four-month high at $1,329.72 an ounce.

Asian stock markets rose on Monday following robust pre-weekend gains on Wall Street, despite disappointing Japanese growth figures which dampened hopes for a strong recovery.

Global markets rallied last week following a turbulent period, as investors were reassured that the US economy could handle the Federal Reserve's decision to reduce its stimulus programme.

US markets were shut on Monday for Presidents' Day.