Italian banks led a sharp European stocks rebound on Monday after the failure of anti-establishment parties to form a government lifted the euro zone's peripheral markets with the prospect of fresh elections.

The Five-Star and League parties have abandoned efforts to form a government after Italy's President vetoed their choice of a eurosceptic economy minister, sending Italian bond yields lower and Italy's main FTSE MIB stock index sharply higher, while the euro also made gains.

The FTSE MIB had climbed 1.4 per cent by 0720 GMT as financials and utilities stocks surged. Italy's banks index jumped 3.1 per cent, set for its biggest gain since January. Unicredit, UBI Banca , Banco BPM and Intesa Sanpaolo rose 2.2 to 2.8 per cent.

Utility Enel , which had also been hurt by investors pricing in some of the coalition's policies on renewable energy, traded up 1.9 per cent.

Banks fuelled a 0.2 per cent gain in Europe's STOXX 600, while Germany's DAX rose 0.5 per cent. Britain's FTSE 100 was closed for a holiday and with US markets also closed, trading volumes were thinner.

Spain's IBEX also rose 0.7 per cent as the rally spread to other southern European markets. Spanish stocks had fallen sharply on Friday on concerns Prime Minister Rajoy would face a no confidence vote. Financials and utilities led the recovery in Spain too, with Santander, BBVA and Caixabank top gainers along with Iberdrola and Gas Natural .

Danish biotech firm Genmab fell 24 per cent after it ended combination trials of its multiple myeloma drug Darzalex with Tecentriq, citing “no observed benefit” and an increase in deaths after the combination treatment.