By Joao Manuel Vicente Mauricio and Johann M Cherian
(Reuters) -European stocks closed at a more than one-month high on Thursday, aided by bank stocks as investors hoped a new budget could be passed in France after Prime Minister Michel Barnier’s government was toppled.
The pan-European STOXX 600 finished 0.4% higher, logging its sixth-straight session of advances. France’s CAC 40 came off a three-week high and ended 0.3% higher.
The euro STOXX’s volatility index dropped 5.2% to touch a three-month low.
An index tracking banks in the currency union led sectoral gains with a 3.2% advance as the risk premium investors demand to hold French debt rather than German Bunds eased further from a 12-year high.
Major French lenders also rose, with BNP Paribas, Societe Generale and Credit Agricole up between 2.3% and 4.3%.
Investors took comfort from remarks by Marine Le Pen of the far-right National Rally (RN), which voted to oust Barnier, saying that she had no plans to seek the removal of President Emmanuel Macron and that a budget could be passed within weeks.
Barnier, the shortest-serving prime minister in modern French history, resigned on Thursday after he failed to find enough support for a budget aimed at taming a wide deficit, but could stay on as caretaker until a new government is formed.
President Macron is expected to deliver a televised address to the country at 1900 GMT.
“Macron is in a situation where he needs to find a new candidate that is accepted from the left and also from the right side of the political environment, and it’s difficult,” Jochen Stanzl, Chief Market Analyst at CMC Markets, said.
“Until (there are new elections) there is no new government policies when it comes economic stimuli that might come.”
Political uncertainty in France has weighed on the CAC 40 ever since Macron called on snap elections in June. The index is the worst performer among top European markets.
Germany’s DAX added 0.6% to close at an all time high above 20,000 points for the third-straight day despite a fragile economy and political environment.
Stanzl said the DAX’s outperformance was reflective of investors pricing in a possible loosening of the country’s debt ceiling.
German copper producer Aurubis jumped 11% after a better-than-expected dividend proposal.
Shell fell 1.4% after the British oil major and Norway’s Equinor said they would merge their British offshore oil and gas assets into an equal joint venture.
Safran fell 7.3% after the French jet engine maker issued new financial targets.
(Reporting by Joao Manuel Mauricio in Gdansk and Sruthi Shankar and Johann M Cherian in Bengaluru; Editing by Saumyadeb Chakrabarty and Anil D’Silva)
