Oil boost and Italy budget hopes support European shares

By Danilo Masoni

MILAN (Reuters) - European shares closed higher on Tuesday boosted by gains among oil stocks and optimism over the Italian budget while British clothing retailer Next <NXT.L> rallied after raising its profit guidance.

The pan-European STOXX 600 <.STOXX> index rose ended the day up 0.45 percent, recovering part of the losses suffered in the previous session when worries over a protracted U.S.-Sino trade war sparked profit-taking.

The oil and gas index <.SXEP> jumped 1.7 percent and reached its highest level since May.

Oil majors BP <BP.L>, Shell <RDSa.AS> and ENI <ENI.MI> rose 2.9 percent, 2.5 percent and 2.4 percent respectively more after Brent hit a fresh four-year high amid looming U.S. sanctions against Iran and an apparent reluctance by OPEC and Russia to raise output to offset the expected to hit to supply.

"Russia and Saudi Arabia essentially ignoring Trump's pleas, combined with U.S. sanctions hitting Iran's oil exports in early November means we expect fresh multi year highs for oil, which will also help the oil majors such as BP and Shell to gain ground in the near term," LCG analyst Jasper Lawler said.

Commodities also rose with basic materials <.SXPP> up 1.8 percent.

Signs that Italy's coalition was likely to reach a compromise over the 2019 budget lifted Italian stocks and bonds with the country's top FTSE MIB <.FTMIB> equity index up around 1.5 percent, outperforming the broader market.

Italian banks <.FTIT8300>, which are sensitive to political risk due to their big sovereign bond holdings, rose 1.5 percent. Their gains helped and growing expectations of a rate hike in the euro zone next year helped lifted the European banks <.SX7P> up 0.7 percent.

State-controlled Italian defence contractor Leonardo <LDOF.MI> rose more than 3 percent after it won a helicopter order from the U.S. Air Force.

One of the top gainer on the STOXX was Next, up 7.7 percent.

The clothing retailer posted a 0.5 percent rise in first-half profit and raised its full-year guidance after better-than-expected trading in August and early September.

Heavyweight drugmaker Novartis <NOVN.S> rose 1.7 percent after saying it would cut about 2,200 jobs in Switzerland over the next four years to help boost profitability.

(Reporting by Danilo Masoni; Editing by Alison Williams and Raissa Kasolowsky)