January 25, 2017 / 5:48 PM / a year ago

Germany's DAX buoyant but Italian shares lag European stock market rally

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* STOXX 600 index ends up 1.3 percent

* Germany’s DAX hits highest for 20 months

* Italy’s FTSE MIB hit by election concern

* Logitech leads after solid update

* Banco Santander boosts banking index

By Atul Prakash and Danilo Masoni

LONDON/MILAN, Jan 25 (Reuters) - European shares rose sharply on Wednesday, boosted by strong earning updates from Logitech and Banco Santander, with the STOXX 600 scoring its biggest one-day gain for 11 weeks.

The benchmark index rose 1.3 percent and Germany’s DAX rose 1.8 percent to its highest since May 2015, underpinned by gains in Deutsche Bank as investors welcomed the possible listing of its asset management arm.

Italy’s FTSE MIB rose 0.4 percent. The index came off highs after the Constitutional Court changed a contested electoral law, allowing a new system based on proportional representation that could mean early elections this year.

One broker said the market was pricing in expectations that no party would be strong enough to win a parliamentary majority and that would clog up the progress of much-needed reforms.

The banking index rose 3 percent, the top riser in the STOXX 600, boosted by Santander and Deutsche, up 4 percent and 5.7 percent respectively. Italian banks also soared, despite the court ruling, with UniCredit up 8.9 percent.

Santander reported a 4-percent rise in 2016 net profit as improved results in Brazil helped offset a weak performance in Britain. Its shares hit their highest since August 2015 and helped Spain’s IBEX index rise 1.7 percent to its highest level for more than a year.

“The earnings outlook for European banks has improved in the past months, with a recovery in economic growth and the interest rate environment supporting sentiment,” BNP Paribas Fortis chief economist Koen De Leus said.

“European shares look relatively attractive on valuation grounds and a weaker euro is good for the region’s exporters. I am positive on the market’s outlook and company earnings,” he said.

The broader stock market was boosted by several individual companies reporting solid results.

Logitech hit its highest since late 2008, rising 15.5 percent after reporting a jump in quarterly earnings and raising its outlook. It also recorded a forecast-beating 13-percent rise in sales, the highest in its 35-year history.

Britain’s WH Smith rose more than 7 percent after saying it expected full-year profit growth to be slightly ahead of expectations as it posted strong sales in its travel business over the Christmas period.

BT Group edged 0.2 percent lower, stabilising after losing a fifth of its value in the previous session after cutting its forecasts.

Chilean mining firm Antofagasta rose 4 percent to its highest since early 2014 after saying that output at its Centinela mine and additional copper from two new operations drove up its 2016 production.

However, Wednesday was not a good day for some companies.

Restaurant Group, operator of more than 500 restaurants and pubs in Britain and owner of the Frankie & Benny’s chain, fell 13.3 percent after news that sales fell last year and that a minimum wage hike would drive up costs in 2017. (Editing by Louise Ireland)

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