By Agamoni Ghosh
(Reuters) - European stock markets ended at a two-week high on Wednesday, led by a rebound in Italian shares and as investors bet more concrete signals of stimulus from central bankers may help allay global slowdown fears.
The pan-European STOXX 600 index <.STOXX> ended 1.2% higher with Milan's blue-chip index <.FTMIB> rising 1.8%, bouncing back from a political crisis-driven sell-off.
The resignation of Italian prime minister Giuseppe Conte on Tuesday, had made investors nervous about Rome's continuing lack of political stability, but also signalled that a new coalition arrangement may be in works.
Italy's main opposition party, Democratic Party (PD), said on Wednesday it was ready to hold talks with the anti-establishment 5-Star Movement over forming a government following the collapse of the previous, populist coalition.
"The new majority would be considered a relatively more positive outcome for market sentiment compared to snap elections," said ING analysts in a note.
On the corporate front, auto stocks <.SXAP> got a boost from reported merger talks between Fiat Chrysler <.FCHA.MI> and Renault <RENA.PA>.
Italian newspaper Il Sole 24 Ore reported that talks between the French and Italian-American car makers may be back on the table, after a proposed multi-billion dollar merger, that was set to create the world's third-largest auto company, collapsed in June.
The European auto sector has been hit by a global auto slowdown with car sales plunging as the sector battles with the transition to electric and other alternative-fuel vehicles.
"This is a great example of two companies getting together, saying that the environment is changing and we have to adapt It's a continuation of a consolidation in the sector to survive in a changing environment," said CMC Markets analyst David Madden.
Among individual stocks, Pandora A/S <PNDORA.CO> shares rallied for a second straight session, up 16%, with Wednesday's move attributed by traders to a reported purchase of 24,400 shares by Chief Financial Officer Anders Boyer.
Interest-rate sensitive banks <.SX7P> made the smallest gains with lender-heavy Madrid stocks <.IBEX> lagging regional peers.
All eyes will be on the U.S. Federal Reserve's Jackson Hole Symposium starting Thursday, where investors hope central bankers including Fed Chair Jerome Powell will tread a dovish tone.
Signs that governments and central banks are ready to step in with additional measure to boost cooling global growth have helped stock markets survive a volatile few weeks, but the pan-Europe STOXX 600 is still on course to end August lower.
(Reporting by Agamoni Ghosh, Shreyashi Sanyal and Amy Caren Daniel in Bengaluru; editing by Patrick Graham and Alexandra Hudson)