European stock markets made a modest recovery and returns on Italian government bonds fell back on Wednesday as fears over political turmoil in the eurozone's third-largest economy eased.
Milan, London and Frankfurt were all higher after sharp falls on Tuesday.
Paris was dragged lower by a sell-off in French banks amid fears about their exposure to Italy.
A successful sale of Italian government bonds was a further sign of investor confidence in the country.
However, Rome was forced to offer a return of 3% on 10-year bonds, more than double the 1.7% at the last auction in late April.
It is also vastly higher than the 0.324% return on German bonds - deemed to be the safest in the eurozone.
The return on five-year Italian bonds soared to 2.32% compared with just 0.56% a month ago and was the highest since February 2014.
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Seema Shah at Principal Global Investors said: "Demand at today's auction was very encouraging, and clearly indicates that investors still have faith in the Italian economy, if not the government. Italy is unlikely to face major refinancing problems in the near term."
Barclays investment strategist Hao Ran Wee said: "No investor would lend to the Italian government if they deem it as being unable to pay back its debt."
Reports on Wednesday said that the anti-establishment Five Star Movement and far-right League had renewed efforts to form a coalition government after the president rejected their choice for the economy ministry over the weekend.
The parties were trying to find "a point of compromise on another name" after the rejection of arch-eurosceptic Paolo Savona for the ministry.
Earlier markets in Asia fell, with the Nikkei in Tokyo falling 1.4%, South Korea's Kospi down more than 1.8% and Hong Kong's Hang Seng 1.4% lower.
The falls in Asian stocks mirrored losses in the United States on Tuesday night, when the S&P 500 fell 1.2% and the Dow Jones ended 1.6% lower.
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