Shares rose in Europe yesterday, with Italian banks gaining after a deal to wind up two failed lenders, while the dollar and US bond yields held close to recent lows as subdued inflation raised questions over the outlook for monetary policy.

The-pan-European STOXX 600 share index rose 0.8 per cent, led higher by banks after the agreement under which Italy’s largest retail bank, Intesa Sanpaolo, will take on the remaining good assets of collapsed Popolare di Vicenza and Veneto Banca.

Intesa shares rose 4.7 per cent. The Italian government will pay it €5.2 billion and give it guarantees of up to a further €12 billion.

An index of Italian banks was up 2.7 per cent and the broader Milan market rose 1.5 per cent.

Italian 10-year government bond yields fell four basis points to 1.88 per cent, narrowing the gap over benchmark German equivalents to 164 bps.

Greece’s 10-year yields fell to their lowest since 2009 after Moody’s upgraded its credit rating.

The euro fell 0.1 per cent to $1.1185, with the dollar edging up 0.1 per cent as the gap between short- and longer-dated US government bond yields held close to recent 10-year lows hit on signs inflation is likely to remain subdued.

Investors greeted the election last year of US President Donald Trump as likely to lift inflation, and with it US interest rates. But price pressures have remained subdued.

The Federal Reserve raised rates this month for the second time this year and has said it expects to raise again later this year. Futures imply only a 50 per cent chance of a further hike by December.

Brent crude, the international benchmark, rose 12 cents, giving back most early gains as the dollar firmed, to $45.66.

Oil prices are down around 13 per cent since late May.

Dollar weakness also initially lifted copper. However, the industrial metal pulled back from an 11-week high as the greenback gained strength and stood at $5,802 a tonne, flat on the day.