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LIVE MARKETS-Brace yourselves

* European stocks edge higher

* Italy's FTSE MIB bounces back

* Trade worries in focus

LONDON, May 30 - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Kit Rees. Reach her on

Messenger to share your thoughts on market moves: kit.rees.thomsonreuters.com@reuters.net

BRACE YOURSELVES (1343 GMT)

Notwithstanding your view on how Italy's political woes are going to play out, investors are

bracing themselves for Italian equities to remain volatile - just today we've seen the FTSE MIB

go from positive, to negative and back to positive.

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"Investors remain at the mercy of headlines while political tensions remain elevated;

volatility will not ease much in this environment and further price corrections may occur,"

Andrea Iannelli, investment director at Fidelity International, said.

However, with price swings come opportunities.

"While political risk is notoriously difficult to price, valuations now appear a little more

balanced following the underperformance of Italian assets and can offer opportunities to

investors willing to weather the volatility and dig a little deeper into corporate

fundamentals," Iannelli adds.

Talking of opportunities, Fabrizio Quirighetti, CIO and co-head of multi-asset at SYZ Asset

Management, says that the jump in peripheral European yields has been "to some extent overdone".

In fact, Quirighetti says that yesterday morning they added marginally to Spain five-year

government bonds and Portugal 15-year government bonds in our EUR fixed income, adding that

Spain's political uncertainties "just arrived at a bad time".

However, Quirighetti says that they have very low or little exposure to Italian government

bonds.

So perhaps some opportunities remain a little too adventurous for now.

(Kit Rees)

*****

VOLATILITY RISES AS POLITICAL RISK BACK IN THE DRIVING SEAT (1300 GMT)

Volatility on Italy's FTSE MIB index has shot up to its highest premium ever to the

Eurostoxx 50 vol, up by more than 8 percentage points in the last month, Goldman Sachs (NYSE: GS-PB - news) finds in

a note.

And Italian volatility drove Spanish, French and Europe-wide stock index volatilities up as

well, GS analysts say, noting some "spillover effect". Volatility on the IBEX has lagged Italy

and could catch up given how heavily weighted the Spanish index is towards banks.

"Investor (LSE: 0NC5.L - news) focus has shifted to systemic risk in the euro area again," they note.

What about that volatility gap between the U.S. and Europe?

We've mentioned before that U.S. volatility has stayed higher than Europe's since February's

blowout, which is unusual. Stress in the euro zone has driven that gap to normalise somewhat.

(Helen Reid)

*****

MIDDAY UPDATE: ITALY RISING FROM THE ASHES (1235 GMT)

Italian stocks are extending their gains as Italy embarks on another attempt to form a

government, while banks are up 1.8 percent - but still a while away from making up

all of yesterday's losses. The main stock index has however recovered fully from

yesterday's fall, but is still down on the year.

Meanwhile European stocks are just about holding small gains, while France's CAC 40 is

weighed down by Vivendi (LSE: 0IIF.L - news) , falling after it lost French football TV rights.

Germany's DAX is outpacing peers as heavyweight Bayer (IOB: 0P6S.IL - news) climbs after winning U.S. approval for

its takeover of Monsanto (Hamburg: 1132157.HM - news) .

Below you can see that Italy's growth hasn't recovered fully from the financial crisis in

2008, and its stock market has followed suit with lacklustre gains - the start of this year was

an anomaly, and also ended up being pretty short-lived.

Here's our latest on the political developments in Italy:

And an analysis (in French) about why Italy never fully recovered from the 2008 crisis.

As you can see below, the gap between Italy and the rest of the Euro zone in terms of

economic output and stock market performance has never ceased to grow since then.

(Helen Reid, Julien Ponthus and Ritvik Carvalho)

*****

SPANISH POLITICAL RISKS: COULD UTILITIES BE HIT? (1032 GMT)

The political turmoil in Italy has hardly blown over but investors are already looking ahead

to the next potential political flare-up in Europe: the Spanish Prime Minister's vote of no

confidence on Friday.

While Italy was the main focus yesterday, some periphery contagion was evident with Spain's

IBEX also falling nearly as much as the FTSE MIB, and banks Santander and Sabadell dropping

substantially.

On Friday Prime Minister Rajoy faces a no-confidence vote in parliament, and analysts at

UBS (LSE: 0QNR.L - news) have prepared for a potential unseating and new government by looking at opposition parties'

policies and how they might impact utility stocks.

In general the parties support closure of nuclear power generation after 40 years, a step-up

in renewables capacity, and lower regulatory returns, they find.

"Under such a scenario we estimate double-digit EPS risk for the most exposed players:

Endesa (LSE: 0N9G.L - news) , Red Electrica (Amsterdam: EL6.AS - news) , and Iberdrola (Amsterdam: ID6.AS - news) ," they write (see chart below).

Switching from nuclear to renewable power generation would require construction of wind and

solar, low-cost capacity which could, according to UBS calculations, reduce power prices by over

10 percent over the long term.

All this is of course only if Rajoy loses the vote, paving the way to a snap election.

Here's our latest on developments there:

Spain's Ciudadanos party said it would not support a motion of no-confidence in Prime

Minister Mariano Rajoy due this Friday, making it unlikely the parliamentary vote will succeed

in unseating him.

(Helen Reid)

*****

"EVERYONE NEEDS TO TAKE A DEEP BREATH..." (0922 GMT)

"..and calm down" - that's the advice from UBS' global chief economist as trading develops

into a picture of (hesitant) relief for Italian stocks.

UBS' Paul Donovan argues bond market moves do not break up monetary unions - bank runs do,

and there's no evidence of these at this point. On top of that, he adds neither Italian parties

nor Italian voters support leaving the Euro, and it's not even certain the two parties would try

to form a government after elections.

Italian stocks did dip to their lowest of the day after League leader Salvini called for a

new vote as soon as possible so there is still some tension, but the dominant tone

from analysts and investors today is one of cautious optimism.

"We believe political uncertainty in Italy will remain elevated for quite some time and

Italian asset prices will continue to be under pressure," write Goldman Sachs analysts.

Here's their summary of the Italian parties' current position in the polls, which investors

will be keeping a close eye on as elections loom nearer:

(Helen Reid)

*****

OPENING SNAPSHOT: MILAN AND MADRID IN TENTATIVE REBOUND (0713 GMT)

It's not strong enough to be called a rebound but the bourses of Milan and Madrid have been

trading in positive territory since the open. Volatility is high and not all trading centres are

going north: France's CAC 40 is down 0.6 percent for example and the STOXX 600 is edging down

0.1 percent.

(Julien Ponthus)

*****

ITALY: ARE FEAR INDEXES REALLY TELLING THE WHOLE STORY? (0703 GMT)

The Italian crisis has prompted jumps in U.S. and European volatility indexes but as you can

see on the charts below, they are still well below the peak they reached during the February

sell-off.

The U.S. VIX and the Euro StOXX 50 volatility closed at 17.02 and 20.15

respectively on Tuesday while their record for the year was set at 50.30 and 36.5 on February 6

and February 9.

On Tuesday, Unicredit (EUREX: DE000A163206.EX - news) analysts argued that while the fall back of the VIX since the February

sell-off would theoretically signal "very little concern over future market developments", it

might be misleading.

"The perception of there being a limited amount of risk in global markets derived by the VIX

index is most likely wrong", they wrote, adding that "such metric of risk appetite might be too

specific to characterize the risks global markets are exposed to these days".

(Julien Ponthus)

*****

WHAT WE'RE WATCHING AHEAD OF THE OPEN (0649 GMT)

A rebound of sorts looks to be on the cards for European shares this morning with stocks

futures trading flat to slightly higher, though continuing jitters over Italian politics and

U.S.-China trade relations will keep investors on edge.

With (Other OTC: WWTH - news) little on the company news front, it’s all about politics with a chance now that Italy

could hold fresh elections as early as July, according to sources. Italy’s benchmark hit its

lowest level since July 2017 in the previous session as Italy’s future in the euro zone was

thrown into question.

In M&A news, Germany’s Bayer has cleared a major hurdle in its takeover of Monsanto after

winning U.S. approval for the deal, though it has agreed to sell around $9 billion in assets.

And we could see more pain for UK retailers with premarket indications calling discounter B&M

1-5 percent lower after its full-year update.

Company news/stocks movers:

Bayer wins U.S. nod for Monsanto deal to create agriculture giant

UK retailer B&M's full-year profit rises 25 pct

Uniper (Swiss: UNIPE.SW - news) supervisory board rejects calls for special audit

British engineer Bodycote (LSE: BOY.L - news) says profit will beat consensus

UK's Londonmetric "nervous" about retail sector outlook

De La Rue (Other OTC: DELRF - news) full-year profit hit by loss of post-Brexit passports

SAS Q2 pretax loss smaller than expected

Royal Bank of Scotland (LSE: RBS.L - news) 's chief financial officer resigns

Daimler (IOB: 0NXX.IL - news) leads $175 mln investment in Uber's EMEA rival Taxify

Vedanta prepares legal challenge to India copper plant closure after fatal protest –

sources

UK's Inchcape (Other OTC: IHCPF - news) pays $20 mln to settle claim it overbilled U.S. Navy

Rolls-Royce says tripling capacity to fix Trent (BSE: 500251.BO - news) 1000 engine problems

Chinese-owned group wins French soccer rights, Canal Plus (Paris: AN.PA - news) empty-handed

Opel agrees job guarantees, investments at German sites

German retail sales rebound with bigger-than-expected jump in April

UK shop prices show biggest fall since January 2017 (–BRC (Shanghai: 600466.SS - news) )

(Kit Rees)

*****

CATCHING UP WITH ITALY (0606 GMT)

European stocks futures have opened slightly lower, and as Italian politics has been front

and centre this week, here's a quick summary of what went down after the European market close

yesterday.

Italy's Democratic Party (PD) has called for snap elections in July, and sources from

several of Italy's main parties said they were in favour of fresh elections on July 29. This

follows an inconclusive vote in March, with the president finally designating former

International Monetary Fund official Carlo Cottarelli as interim prime minister on Monday.

Yesterday Italy's benchmark FTSE MIB index tumbled 2.7 percent and hit its lowest

level since July 2017, while European stocks also fell.

"There was sufficient negative contagion to leave the Eurozone benchmarks nursing their

biggest losses for two months, although it does feel as if this crisis coincides with investors

already looking to scale back risk exposure," Ian Williams, economics & strategy research

analyst at Peel Hunt, said in a note.

(Kit Rees)

*****

EARNINGS: QUIET (0542 GMT)

It's set to be pretty quiet for company earnings this morning, but nevertheless here are the

firms set to give updates in Europe:

HACGn.DE Q2 2018 KPS AG Earnings Release

NAVA.OL Q1 2018 Navamedic ASA Earnings Release

B8FGn.DE Q1 2018 Biofrontera AG Earnings Release

SAGT.OL Q1 2018 Saga Tankers ASA Earnings Release

MATAS (LSE: 0QFA.L - news) .CO Q4 2018 Matas A/S Earnings Release

DMRE.DE Q1 2018 Demire Deutsche Mittelstand Real Estate AG Earnings Release

FRU.DE Q1 2018 Ferratum Oyj Earnings Release

2GBG.DE Q1 2018 2G energy AG Earnings Release

LMPL.L Full Year 2018 Londonmetric Property PLC Earnings Release

STRV.VI Q1 2018 Strabag SE Earnings Release

EVNV.VI Half Year 2018 EVN AG Earnings Release

SAS (LSE: 0O1W.L - news) .ST Q2 2018 SAS AB Earnings Release

(Kit Rees)

*****

MORNING CALL: EUROPEAN SHARES SEEN OPENING SLIGHTLY LOWER (0530 GMT)

Good morning. European shares are expected to open flat to slightly lower, according to

financial spreadbetters, as concerns over Italy continue to worry investors while U.S.-China

trade relations are also in focus.

Spreadbetters see Britain's FTSE 100 edging 0.1 percent lower, Germany's DAX opening flat

and France's CAC down between 0.1 to 0.5 percent.

On Tuesday, the U.S. said that it still holds the threat of imposing tariffs on $50 billion

of imports from China and would use it unless Beijing addressed the issue of theft of American

intellectual property. Asian shares were lower across the board, with the CSI300 index down 1.3

percent.

Wall Street also ended in negative territory as Italy jitters knocked sentiment across the

pond.

(Kit Rees)

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)