European shares rallied on Wednesday as Italian banks recovered on hopes of a compromise with Brussels over its budget plans as the technology sector, which stalled following a large sell-off on concerns about iPhone demand, surged.

 

The Stoxx 600 European index rose 0.5 percent in early trade and headed for recovery from five-day losses that pushed the European index near a nearly two-year low hit last month.

 

Germany's DAX <.DXI> was up 0.9 percent, while Britain's Financial Times 100 gained 0.3 percent.

 

The Italian banking index rose 2.5 percent after a report that Italian Deputy Prime Minister Matteo Salveni may be open to reviewing the government's budget for 2019, boosting hopes that Italy will avoid a clash with the European Commission.

 

The broader European banking sector was the top gainer in early trading, rising 1 percent and technology up 0.4 percent.

 

Although the recovery was widespread as most sectors rose, investors remain cautious about market expectations due to continued concerns about slowing economy and profit growth.

 

Otherwise, corporate business results have led to sharp price movements. Babcock slipped 12 percent after the defense company incurred a £ 120m extraordinary fee to reorganize its operations and warned that the proceeds of the nuclear plant dismantling unit could fall more than expected.