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Europe: Italy's UniCredit and Mediaset boost European shares to 11-month high

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[MILAN] European shares rose on Tuesday, helped by a rally in Italy's biggest bank UniCredit on plans to bolster its balance sheet, while takeover speculation allowed Mediaset to make its best one-day gain ever.

Mediaset surged 31.9 per cent, the biggest gainer in Europe, after French media group Vivendi said it owned a 3 per cent stake in the Italian broadcaster and planned to raise that to as much as 20 per cent, fuelling expectations of a takeover bid.

"This is just the first page of a new story," Mediobanca analysts said in a note. "A group like Mediaset... is a corner stone for everyone willing to set up a media platform, with strong focus on southern Europe." Shares in its Spanish arm Mediaset Espana rose 6 per cent.

The pan-European Stoxx 600 index climbed to a new 11-month high to end up 1.1 per cent.

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UniCredit rose 15.9 per cent, its best day in more than six years, after unveiling plans to raise 13 billion euros in Italy's biggest-ever share issue to shore up its balance sheet and shield itself from a broader banking crisis. Traders said the rise was exacerbated by short covering.

UniCredit's move comes at a difficult time, with ailing lender Monte dei Paschi di Siena at risk of failure, a new government just installed in Rome and early elections expected next year.

"It's a hard medicine to swallow, but UniCredit's move to raise billions of euros and a restructuring programme would put the bank in a much better shape," said Koen De Leus, chief economist at BNP Paribas Fortis. "Overall sentiment has improved on expectations that the new government could support the banking sector and help Monte dei Paschi raise capital from private investors. I hope they will not waste this crisis and clean up their non-performing loans."

Italy's new prime minister Paolo Gentiloni said that his government would be ready to take action to support the country's troubled banking sector.

The surge in UniCredit shares helped Italy's banking index rise 5.8 per cent to its highest close since end June, while Italy's blue chip index outperformed the rest of Europe with a 2.5 per cent rise.

Italian banks have been rallying since last week as investors covered short positions on expectations that a solution to rescue Monte dei Paschi would be found.

Investors were also keeping an eye on the Federal Reserve's two-day policy meeting from Tuesday. It is widely expected to hike rates for the first time in 2016, with markets pricing in a nearly 100 per cent chance of a quarter per centage point rise.

In focus will be the Fed's statement and economic projections, which will be pored over for any sign of reaction to political outsider Donald Trump's US presidential election win.

Elsewhere, AP Moller-Maersk surged 4 per cent. The world's biggest container shipper said it might consider selling assets or cutting dividends as it seeks to retain its credit rating.