European stocks edge higher as Spain's IBEX pulls out of nosedive

MILAN/LONDON (Reuters) - Spanish stocks rebounded on Thursday from heavy losses in the previous session driven by escalating tensions over Catalonia, leading gains across European indexes.

FILE PHOTO: The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, September 20, 2017. REUTERS/Staff/Remote

Spain's IBEX .IBEX ended the session up 2.5 percent, led by its banking stocks, as worries over Catalonia eased.

Shares in Banco Sabadell SABE.MC rose 6.2 percent on news the bank's board would meet to discuss moving their headquarters out of Catalonia's capital city, Barcelona.

Sabadell led gains on the main share index, closely followed by Caixabank CABK.MC, also headquartered in Barcelona.

Analysts said Spanish banks in particular had benefited from the country’s improving economic growth.

“Throughout this year, the Spanish economy has been continuing to do extremely well, and the banks have been big beneficiaries of that,” said Jefferies banks analyst Benjie Creelan-Sandford.

“Clearly, share prices have come under pressure, but Caixabank and Sabadell are still up around 20 percent year-to-date.”

The pan-European STOXX 600 index .STOXX index closed 0.2 percent lower, while Germany's DAX .GDAXI was flat, off the record high it reached on Wednesday.

A quarterly Reuters poll published showed that Spanish stocks were expected to end 2017 up nearly 14 percent, a drop from the 20 percent rise seen in the previous poll.

The poll predicted the DAX would rise 13 percent this year and 5 percent in 2018. France's CAC .FCHI is seen up 11 percent in 2017 and 7 percent in 2018. Italy's FTSE MIB .FTMIB is the front-runner to end 2017 as the best-performing country index.

The biggest declines on the STOXX came from shares in Assa Abloy ASSAb.ST, down 5 percent, after it said Chief Executive Johan Molin may step down next year after more than a decade running the Swedish lockmaker.

Osram Licht OSRn.DE declined 4.7 percent after Siemens sold its remaining 17 percent stake for 1.2 billion euros.

Several banking stocks dragged, with Barclays BARC.L falling after a downgrade by Exane.

Banks were hit this week by worries over Spain and news that the ECB will ask banks to set aside more cash to cover newly classified bad loans.

Mid-tier Italian lender Creval PCVI.MI fell 10.6 percent, with traders citing a downgrade by an Italian broker who said the bank may need a cash call to fund further loan-loss provisions following the ECB decision.

Utilities .SX6P were led higher by French power company EDF EDF.PA, which gained 3.3 percent after an upgrade to "buy" at Jefferies.

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Reporting by Danilo Masoni; Editing by Robin Pomeroy