FTSE 100: 7682.27 ▲ 125.83 (1.67%)
Markets have rallied on news a new government will be sworn into power in Italy today, ending three months of political deadlock.
Coalition partners Five Star Movement and the League secured agreement from president Sergio Mattarella to a revised slate of ministers, with Giuseppe Conte (pictured) serving as prime minister.
Mattarella had earlier this week blocked the parties' choice of finance minister and appointed an interim prime minister, setting the country on course for fresh elections.
Investors were buoyed by the removal of the threat of another election, and the potential for further gains from populist parties.
Italy's FTSE MIB index surged 2.8%, with the news also bolstering markets across Europe.
The FTSE 100 rose 54 points, or 0.7%, to 7,733 while Germany's DAX 30 added 0.6% and France's CAC 40 jumped 1%.
The UK blue-chip index has now recovered all the losses in the sell-off at the start of the week sparked by fears over Italy, although broader European markets are still in the red for the week. Our exclusive Accumulator data table, covering the week to yesterday, has the details.
'The formation of any Italian government is something to celebrate given how pronounced fears were that the situation would result in a Eurosceptic snap election,' said Connor Campbell, analyst at Spreadex.
Paolo Pizzoli, economist at ING, said the market reaction to Mattarella's appointment of former International Monetary Fund economist Carlo Cottarelli as interim prime minister was likely to have sparked the breakthrough.
At the end of last month, the fund managers with the largest exposure to Dignity were
'Market developments over the last few days likely played a key role in convincing the Italian president that a neutral Cottarelli government without political backing could have left Italy too vulnerable to the risk of spreading confidence crises,' he said.
The Italian breakthrough helped to offset bearishness sparked by the US imposition of steel and aluminium tariffs on the European Union, Canada and Mexico yesterday.
The US has imposed a 25% duty on steel and 10% on aluminium in the latest sign of president Donald Trump's protectionist agenda.
Larry Lau, manager of the Trium Diversified Macro fund, said the US announcement was intended to shock.
'To the extent that the EU and others are disinclined to engage in an actual trade war or spend time engaging in ugly disputes via the World Trade Organisation, one might expect some speedy deal-making behind the scenes,' he said.
On the FTSE 100, banks led the way in a relief rally on the Italian breakthrough.
The biggest mover on the FTSE All-Share was funeral services provider Dignity (DTY), down 14.2% at £10.44, as the government and Competition and Markets Authority (CMA) both launched reviews into funeral costs.
The Treasury said it would consult on tougher regulation for the pre-paid funeral plan sector, including bringing it under the supervision of the Financial Conduct Authority, saying vulnerable people were being 'pressured, harassed and miseld' by some providers.
'I'm apalled by the lengths that some dishonest salesmen have gone to in order to sell a funeral plan,' said John Glen, economic secretary to the Treasury.
The CMA said it was launching a separate review of the funerals market to ensure customers were not getting a bad deal, pledging to examine the rising cost of cremation.
'We want to ensure that people can at least receive clear information on prices and the services making up a funeral, and that people get a fair deal on the cremation fees charged,' said Daniel Gordon, CMA senior director of markets.
Peel Hunt said the CMA review was the bigger threat for Dignity, whose shares have lost nearly 60% of their value over the last year as the company was forced to cut prices.
'The news is likely to make Dignity look towards lower pricing rather than stick to the full priced traditional funeral,' he said.
'The company has more to be concerned about on the cremation side as prices have risen substantially and crematoriums are effectively local monopolies.'
At the end of last month, the fund managers with the heaviest exposure to Dignity were Adam Rackley, at 5.9% of his £4 million VT Cape Wrath UK Focus fund, and George Cooke, at 4.6% of his £9 million Montanaro UK Smaller Companies fund.