A visitor walks through the entrance hall inside the Borsa Italiana, Italy’s stock exchange, which is part of the London Stock Exchange Group, in Milan (file). Milan’s FTSE-Mib yesterday jumped 3.11% to close at 17,977 points on hopes Prime Minister Enrico Letta will survive a confidence vote as support for former premier Silvio Berlusconi fragmented.

AFP/London

European stock markets rose strongly yesterday despite a dramatic US government shutdown threatening the normal run of business in the world’s biggest economy on hopes of a settlement to Italy’s political crisis.

Milan’s FTSE-Mib jumped 3.11% to close at 17,977 points on hopes Prime Minister Enrico Letta will survive a confidence vote as support for former premier Silvio Berlusconi fragmented.

Frankfurt’s DAX 30 rose 1.10 to 8,689.14 points and the CAC 40 in Paris climbed 1.28% to 4,196.6 points.

London’s benchmark FTSE 100 index was the outlier, ending nearly flat at 6,460 points, as mining stocks took a hit from Chinese manufacturing data.

Wall Street also shrugged off the US government shutdown, with the Dow Jones Industrial Average up 0.44% in midday trading, finding further support from data showing US manufacturing expanded in September for the fourth month in a row.

The S&P 500 climbed 0.81% and the tech-heavy Nasdaq gained 0.97%.

“It would appear that the markets either aren’t overly bothered by Congress’s inability to avoid a government shutdown, or aren’t particularly surprised,” said analysts from the Alpari trading group.

The stand-off in Washington did move the foreign exchange markets where the euro hit the highest point against the dollar in eight-and-a-half months at $1.3588 before pulling back slightly.

It later stood at $1.3539, which compared with $1.3524 late on Monday.

The dollar edged back down against the yen, with investors saying the Capitol Hill stand-off made it less likely the Federal Reserve would start winding down its stimulus programme soon.

The dollar fell to ¥98 from ¥98.21 on Monday.

Sterling rose to $1.6213 from $1.6185 late on Monday, and to €1.1979 from €1.1964.

The US government shut down at midnight Washington time (0400 GMT) as Republicans and Democrats refused to give ground to reach a budget deal.

World markets had expected the deadline to pass with no breakthrough and shares had fallen in previous sessions.

The US closure will see about 800,000 federal staff told to stay at home, leading to the closure of numerous agencies in the first shutdown since 1996 that President Barack Obama warned will hit a budding recovery in the world’s biggest economy.

Art Hogan, head of product strategy for Lazard Capital Markets, said investors are likely assuming the shutdown will be short.

“The market is reflecting the assumption it is going to be over in 48 hours,” Hogan said. “I don’t know if it is going to be the case.”

“The longer this situation persists, the more of an adverse effect it is going to have on the economy and the market,” Hogan added.

European markets also had reason to cheer as it appears the Italian political crisis may soon be resolved and unemployment on the continent ticked down for the first time more than two years.

Most of “Europe’s markets have been led by the Italian FTSEMib which has bounced back quite strongly as hopes rise that Enrico Letta’s government will be able to limp on in the wake of tomorrow’s scheduled confidence vote,” said CMC Markets UK analyst Michael Hewson.

Investors appeared increasingly confident that Letta’s government will not fall after once loyal supporters of Berlusconi spoke out against him.