European shares set three-month high, ECB in limelight

Timing of the ECB meeting is crucial for the market as heightened political uncertainty has been making investors jittery

European shares climbed to a three-month high on Thursday, with investors betting that the European Central Bank will extend its asset purchases after a policy meeting later in the day.

The central bank, which aims to boost stubbornly weak price growth, will announce its main policy decisions at 1245 GMT, followed by ECB President Mario Draghi's news conference at 1330 GMT.

The timing of the ECB meeting is crucial for the market as heightened political uncertainty in the region has been making investors jittery. Italian Prime Minister Matteo Renzi's resignation following a crushing referendum defeat is the latest example, with focus turning to elections in France and Germany.

"Recent events in Italy leading to Prime Minister Renzi to resign and resulting in more uncertainty for Italy and the euro zone ... make an extension of QE by the ECB more likely," said Markus Huber, a trader at City of London Markets, referring to the ECB's quantitative easing programme.

"Until recently, the most likely scenario appeared to be that the ECB would slowly reduce the amount of QE starting in April or even earlier. However this might be pushed out much further now as the ECB won't be risking the euro zone sliding into a new crisis."

The pan-European STOXX 600 index rose for a fourth straight day and was last up 0.2% after hitting its highest since early September. It has gained 2.7% so far this week and is on track for its best weekly gain since July.

Across Europe, Italy's FTSE MIB index was up 0.3% after climbing to its highest level since late May, supported by a 1% rise in the country's banking index to a five-month high.

Italian banks have gained more than 12% this week and are on track for their best weekly performance in four years, with investors betting that Renzi's resignation would not be a disaster for the sector and the ECB and the new Italian government would help some struggling Italian banks.

Italy's third-biggest bank, Monte dei Paschi di Siena, rose for a third straight day and was last up 3.8%. The bank has asked the ECB for more time to wrap up a 5 billion euro ($5.4 billion) rescue plan that was thrown into doubt by Renzi's resignation.

Miners were also in demand, with the regional index rising 0.2% to its highest level since mid-2015, after metals prices rose on a softer US dollar and strong Chinese commodities import figures.

Elsewhere, shares in Swedish biometric technology firm Fingerprint Cards fell nearly 12%, the top decliner in the STOXX Europe 600 index, after the company sharply cut its 2016 revenue forecast.

Bookmakers Ladbrokes Coral and William Hill fell 7.3% and 8.7% respectively after The Times reported a cross-party group of MPs would demand on Thursday stricter controls on betting machines.