Europe close: Stocks bounce back on banking M&A, oil price slump

(Sharecast News) - European stocks bounced back on Monday after two days in the red, with sentiment boosted by M&A activity in the banking sector and another sharp drop in oil prices.

The Stoxx 600 finished 1.3% higher, almost erasing a 1.4% sell-off over the past two sessions as traders reassessed the potential implications of a political shift in Washington.

All major markets posted solid gains on Monday, though Milan's FTSE MIB was the standout outperformer, surging 2.7% on the back of hopes of consolidation in the banking sector.

Banco BPM shares surged after Credit Agricole said it had proposed merging its Italian subsidiary with the bank in a move that would create Italy's third-largest bank. The French banking giant said on Monday that it had approached Banco BPM about a potential combination with Crédit Agricole Italia, offering a 20% valuation premium and a �1bn extraordinary dividend to Banco BPM's existing shareholders.

Meanwhile, UniCredit shares also jumped after revealing that it should receive the remaining regulatory approvals to merge its German operations with Commerzbank in the coming months, earlier than initially expected. Italy's second-biggest bank also posted a much larger-than-forecast rise in third-quarter earnings and lifted full-year profit guidance.

Also giving markets a boost were comments from Donald Trump, who said further US attacks on Iran were unlikely in the event of progress in negotiations with Tehran. The remarks sent front-month Brent crude futures down 4.6% to $93.77 a barrel, on track to settle at its lowest since the start of September.

"Big daily swings are a characteristic of stock market corrections, but at some point they turn into sustained bounces. Investors appear to be betting that this is the case today," said Chris Beauchamp, chief market analyst at IG.

"A slump in oil prices is welcome news of course, but the slump last week in tech stocks may have been the reset markets needed. It certainly seemed to come with plenty of doom-laden commentary, of the type that often characterises market lows."

In economic news, Germany's trade surplus fell more than expected in September as imports grew at more than twice the pace of exports, according to figures released on Monday by the Federal Statistical Office (Destatis).

The calendar- and seasonally-adjusted trade surplus fell to �15.6bn from �17.9bn in August, coming in well below the consensus forecast of �19.2bn. Imports jumped 4.2% month-on-month to �125.5bn, while exports increased by a more modest 2.0% to �141.1bn, reversing a 0.4% decline in August.