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European Shares Rally On Fiat-Renault Deal Hopes

European stocks were sharply higher on Wednesday, with automakers leading the surge on reports that merger talks between Fiat Chrysler Automobiles and Renault have gained traction.

Investors also cheered media reports suggesting that the German government had agreed a draft law largely scrapping the so-called "Solidarity Surcharge" on income tax to shore up Europe's largest economy.

Elsewhere, Giuseppe Conte resigned as Italian Prime Minister, passing the baton over to President Sergio Mattarella to decide whether to call new elections or ask parties to form a new government.

Italian bonds breathed a sigh of relief despite the political upheaval in the country.

The pan European Stoxx 600 was up 1.1 percent at 375.50 after declining 0.7 percent on Tuesday.

The German DAX was rising 1.2 percent, France's CAC 40 index was up as much as 1.5 percent and the U.K.'s FTSE 100 was gaining 1.1 percent.

Fiat Chrysler shares jumped 3.7 percent in Milan and Renault shares were up nearly 5 percent in Paris while German carmakers BMW, Daimler and Volkswagen were up around 2 percent each.

Danish jewelry group Pandora A/S surged more than 13 percent to extend gains from the previous session after backing its full-year guidance.

Hammerson advanced 1.5 percent after the British property development and investment company appointed James Lenton as CFO and Executive Director.

Capita surged 3 percent after brokerage Goldman Sachs upgraded its rating on the stock to "buy".

In economic releases, the U.K. budget balance showed a surplus in July, figures from the Office for National Statistics showed.

Public sector net borrowing excluding public sector banks was in GBP 1.3 billion surplus. Nonetheless, this was smaller by GBP 2.2 billion from July 2018 and also remained below economists' forecast of GBP 2.7 billion.

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