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European shares swing on Italian budget woes

MILAN/LONDON (Reuters) - European shares rose slightly on Thursday, reversing initial losses, as anxiety over political stability in Italy appeared to ease just hours before a cabinet meeting to set budget targets.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 24, 2018. REUTERS/Staff

Italian stocks .FTITLMS came off lows but remained in negative territory, ending down 0.6 percent, while the broader pan-European STOXX 600 .STOXX index rose 0.4 percent to a one-month high, having earlier lost as much as 0.6 percent.

A newspaper report that an Italian cabinet meeting on 2019 budget goals would be pushed back a few days raised worries that Economy Minister Giovanni Tria could resign, risking putting Rome on a collision course with the European Union.

The prime minister’s office later denied the report and the meeting was finally set for 1800 GMT, easing initial worries. A well-bid auction of Italian government bonds also gave support.

“If the results of this morning’s Italian debt auction are anything to go by, then the market is confident a crisis can be averted,” said Capital Index Research Director Kathleen Brooks.

The Italian banking index .FTIT8300 more than halved losses, ending down 1.3 percent. Italian banks are particularly sensitive to political risk due to their big sovereign bond holdings. Euro zone banks .SX7E fell 0.3 percent.

Although tensions appeared to ease some, investors remained cautious about the prospects of the euro zone member.

Societe Generale analysts wrote: “Given the amount of dissent between the two parties and the discontent within Five Star itself, it seems quite possible that the coalition could collapse at the time of the budget vote or just afterwards, as the disagreements could intensify once the details of the budget bill are known.”

Euro zone banks’ earnings forecasts have been revised down consistently over the past months as political risks mounted.

In positive moves, the Swedish fashion retailer H&M HMb.ST jumped 11.1 percent after reassuring investors it would not need to cut costs further to shift unsold clothing.

Stronger-than-expected margin figures helped investors shrug off a one-off hit from logistics problems.

The large amount of H&M shares being shorted by investors also makes any positive news a significant boost for the stock as short sellers are “squeezed” to unravel their position.

Weak results and broker notes caused some sharp moves lower.

Chipmaker AMS AMS.S fell 6.4 percent after UBS analysts cut their price target on the stock.

“Given the lack of visibility on how broadly 3D sensing will be adopted in 2019 in the Android universe, AMS’s competitive positioning and the gross margin pressures that the company has faced lead us to stick with a neutral rating,” they wrote.

Ambu AMBUB.CO shares fell 16.7 percent with traders citing a negative note from Nordea.

Drugmaker Indivior INDV.L fell another 13 percent, adding to losses after a 16.5 percent dive on Wednesday after it slashed a revenue forecast for its opioid addiction drug Sublocade.

The online financial trading firm IG Group IGG.L also sank 12 percent after saying its CEO Peter Hetherington would step down immediately. Last week the stock fell after weak results last week.

Reporting by Helen Reid; Editing by Hugh Lawson