Italian bond yields eased slightly but remained close to unsustainable levels as lawmakers in Rome readied for a crucial vote on public finances.
The euro slipped against the dollar.
The FTSEurofirst 300 .FTEU3 index of top European shares was up 1.4 percent, lifted by the likes of Vodafone (VOD.L) , which edged its full-year outlook higher on growth in emerging markets.
Marks & Spencer (MKS.L), Britain’s biggest clothing retailer, also rose after a fall in profit that was not as bad as some had expected.
”Companies have beaten expectations, but that is against lowered expectations,“ Jeremy Batstone-Carr, strategist at Charles Stanley, said. ”There may be a good share price reaction on the day, but it tends not to last.
Corporate earnings have been one of the few bright spots for investors this year as rolling crises have destroyed appetite.
Investors on Tuesday shifted their attention from Greece -- where attempts are still underway to form a consensus government to keep the country in the euro zone -- to Italy, where Prime Minister Silvio Berlusconi is under intense pressure to resign.
Ten-year Italian bonds were yielding more than 6.6 percent, closing in on the 7 percent level that prompted Ireland and Portugal to seek bailouts.
Deep political divisions over the euro zone’s third-largest economy have spooked investors.
Barclays said in a note that current yield levels were “clearly unsustainable.” But it added that even if Italy enacts its planned budget reforms they may not be enough to stabilize financial markets.
“Historical experience suggests that the self-reinforcing negative market dynamics that now threaten Italy are very difficult to break,” it said in a note. “At this point, Italy may be beyond the point of no return.”
The euro was broadly weaker, falling against both the dollar and the Swiss franc.
With the anxiety surrounding one of the world’s biggest sovereign bond markets, the euro shed 0.1 percent to $1.3762, down from $1.3773 late in New York and well off a 2-month high of $1.4248 hit on October 27.
Additional Reporting by Brian Gorman and William James; Editing by Catherine Evans