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* Euro STOXX 50 index up 0.4 pct
* German share outperform after factory data
* Italian banks lower after govt measures
* Auto stocks among biggest gainers
By Danilo Masoni and Atul Prakash
MILAN/LONDON, May 2 (Reuters) - European shares climbed back on Monday after sharp declines in the previous session, with German shares outperforming the broader market after a positive manufacturing survey report.
However, Italian banks fell as traders said new measures the government approved late on Friday to speed up recovery of unpaid loans would fail to have a big impact in the short term.
Trading volumes were thin as the UK market and other bourses in Europe were closed for a public holiday.
The euro zone’s blue-chip Euro STOXX 50 index was up 0.4 percent by 1239 GMT. Germany’s DAX rose 0.9 percent after data showed factory activity in Europe’s biggest economy rose to a three-month high in April, buoyed by rising demand at home and abroad.
“German equities are reacting positively after the factory activity data. It’s a pleasant surprise, but I still think that we are not out of the woods yet,” said Koen De Leus, senior economist at KBC in Brussels.
“We don’t see a big acceleration in German growth trends because an appreciation in the euro against the dollar and a recent recovery in oil prices will continue to be major headwinds.”
Autos were among the biggest gainers with Fiat Chrysler leading the way before its sport car unit Ferrari releases it earnings later on Monday, while Volkswagen and BMW both rose over 1 percent.
Milan’s blue chip FTSE MIB index fell 0.4 percent, with banks UniCredit, Monte dei Paschi and Banco Popolare all down between 3.3 and 5.8 percent.
The Italian government passed a decree to speed up the recovery of unpaid loans in a bid to help banks tackle a bad loan pile and restore market confidence in the battered sector. But investors on Monday expressed some disappointment about the measures and said it would take time to see their impact.
“The new measure seems interesting but the market will need more clarity on how quickly the new initiatives will feed into the economy and how many of the existing lending contracts will be amended to include them,” Citi said in a note to clients.
BASF fell 2.9 percent after its shares traded without the attraction of latest dividend payouts.
Today’s European research round-up
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Additional reporting by Valentina Za in Milan; Editing by Robin Pomeroy