LONDON—European stocks pushed higher Wednesday, with beaten-down bank stocks pacing the advance on expectations that European Union finance ministers are looking into coordinating a recapitalization of the region's banks.
The benchmark Stoxx Europe 600 index was up 1.9% at 221.62. Frankfurt's DAX was 3.4% higher at 5296.21, Paris' CAC-40 index was up 2.8% at 2930.73, and London's FTSE 100 was up 1.9% at 5040.12.
Among individual stocks, French banks, which had been the worst hit recently, fared the best. BNP Paribas rose 5.2% and Société Générale gained 4.9%. The Stoxx Europe 600 index for the sector added 2.6% to 128.02.
Franco-Belgian bank Dexia also managed to recover from its recent selloff, trading up 8.4%. Belgium on Tuesday approved the creation of a "bad bank" to house assets at risk at the bank.
Analysts said markets were boosted by a report from the Financial Times stating that EU finance ministers, meeting in Luxembourg, concluded that they hadn't done enough to convince financial markets that Europe's banks could withstand the debt crisis and that banks would need recapitalizing.
"It appears the sharp deterioration in market sentiment has resulted in a collective resolve in an attempt to deal with the euro-zone crisis," said Brown Brothers Harriman.
This positive tone is expected to continue when trading begins on Wall Street later Wednesday. The front month Dow Jones Industrial Average futures contract was up 35 points at 10718, and the S&P 500 contract was up 5.3 points at 1118.9.
Traders cautioned that with the fundamental backdrop still unchanged, Wednesday's gains may be little more than a temporary relief rally.
"Whilst it is encouraging that EU leaders are addressing the perceived weakness of the financial system, it would not be unusual for the initial positive reaction to be followed by concern on delay as agreement on broad principles turns to disagreement on detail," added RBC Capital Markets.
Moody's downgrade of Italy's debt rating late Tuesday served as a reminder that peripheral European debt is still very much a concern. Moody's downgraded Italy's government bond rating by three notches, to A2 with a negative outlook, from Aa2. The negative outlook, which suggests a further downgrade in the near future, "reflects ongoing economic and financial risks in Italy and in the euro area," said Moody's.
The move came two weeks after Standard & Poor's cut Italy's sovereign debt rating. The Italian government said in a statement that Moody"s decision was expected and reiterated its pledge to balance its budget.
Economic data Wednesday also fed into concerns of slowing global growth. The euro-zone economy contracted in September for the first time in over two years, as activity in both the services and manufacturing sectors declined, according to a survey of purchasing managers conducted by Markit Economics.
Similarly, retail sales across the 17 countries that share the euro fell in August, driven by a huge drop in Germany, the currency area's largest economy.
In currency markets, the euro was largely unchanged against the dollar and the yen. The euro was recently trading at $1.3339, down from $1.3352, and at ¥102.25, from ¥102.54. At the same time, the dollar was at ¥76.65, from ¥76.81.
The price of spot gold was down $5.90 at $1,615.50 a troy ounce from Tuesday's settlement. In the oil market, the November Nymex crude-oil futures contract was up $2.07 at $77.74 a barrel, while November Brent was up $1.61 at $101.40.
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