LIVE MARKETS-Closing snapshot: STOXX 600 breaks 4-day losing streak

* European stocks rise, snapping 4-day losing streak

* Italian bonds, stocks jump on budget deal with EU

* GSK gains on Pfizer (NYSE: PFE - news) joint venture and split plans

* FedEx (Swiss: FDX-USD.SW - news) profit warning dents Deutsche Post (IOB: 0H3Q.IL - news) and Royal Mail (LSE: RMG.L - news)

* Romania bank tax plans hurt Erste Bank (IOB: 0MJK.IL - news) , Raiffeisen

Dec (Shanghai: 600875.SS - news) 19 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger to

share your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: STOXX 600 BREAKS 4-DAY LOSING STREAK (1522 GMT)

Caution returned to the market today as investors were hopeful in the Federal Reserve

delivering a dovish rate hike, while a compromise between Brussels and Rome over the Italian

government contested budged also gave a lift to investors' mood.

As a result, European shares managed to break a 4-day losing streak that brought the

pan-regional STOXX 600 benchmark index near the 2-year lows hit last week. The index rose 0.3

percent but was still down around 5 percent so far in December, while Italy's FTSE MIB rose 1.6

percent on the day as local banks got a big boost by the budget deal.

Here's your closing snapshot:

(Danilo Masoni)

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ITALY'S FLAVOUR OF THE MONTH AGAIN (1402 GMT)

Faster than fast fashion trends hit the shelves and go stale again, strategists and

investors are changing their views on the Italian market, eyeing mounting risks from France (and

Belgium, as we mentioned below) while Italy looks safer than it has in a while.

After what they call the "compromesso italiano" with the EU, Citi strategists led by

Jonathan Stubbs are reiterating their positive call on Italy, recommending investors buy back

into the market which is trading at a sizeable discount to its euro zone peers.

"Italy trades on a 'crisis floor' P/E relative to the rest of Europe," they write.

Indeed, as you can see below, Italy's price-to-earnings ratio relative to the market, to

Germany, and to France, has fallen this year to levels last seen in 2011.

The market's valuation relative to France is the lowest, making a "buy Italy, sell France"

trade seem to make sense.

Italy could make a comeback... but it still has a way to go to get back to those 2008 highs

it hit in May this year.

(Helen Reid)

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CAN BELGIUM REPLACE ITALY IN THE EURO ZONE TROUBLE CLUB? (1248 GMT)

Even (Taiwan OTC: 6436.TWO - news) the best teams need a first class substitute! Question is: can Belgium do as good a job

as Italy in the euro zone's troubled club and prove an effective wingman to France and its

turbulent 'yellow vests'?

While Italian bonds and stocks are cheering (perhaps a tad over-optimistically) the budget

deal struck between the populist government and Brussels, the yield between Belgian government

bonds and their German peers hit its widest level in over 1-1/2 years at 51 basis points.

In the short term, the consensus is that Prime Minister Charles Michel's resignation will

lead to a caretaker government which will remain in place until the planned general election in

May and run the country on a temporary budget.

"The most concerning thing is that a number of reforms that the government announced last

summer will most probably won't be approved anymore," argues ING's chief economist for Belgium,

Peter Vanden Houte.

He notes that "reforms are certainly needed to support the longer-term growth potential and

the sustainability of the pay-as-you-go pension system".

Belgium has the dubious privilege of being part of the small club of countries with

debt-to-GDP ratios of above 100 percent and as such is worthy of attention.

But on the longer term, euro zone watchers know that the mother of all concerns is a

political crisis which would split the linguistically divided country into two or three

independent entities. Because who would pay the bill for its mighty debt pile?

(Julien Ponthus, Abhinav Ramnarayan and Virginia Furness)

*****

2.04 IS THE NEW 2.4 (1235 GMT)

Italian assets are partying today after Rome compromised with Brussels over its contested

2019 budget by agreeing to cut its deficit target to 2.04 percent of GDP from the initial 2.4

percent, ending months of wrangling that spooked investors.

Commission Vice President Valdis Dombrovskis has just made the deal official, saying the

compromise is a victory of political dialogue and will avoid an excessive deficit procedure for

the euro zone's third largest economy.

Jim Wood-Smith, head of research at Hawksmoor Investment Management views the deal as "a

very sensible compromise" and says "Italy was never something we worried about."

"Everybody got a bit too scared in the first place so the rebound on the reality that it's

not going to be the end of the world is probably a fair cop," he adds.

The Milan stock exchange is now rallying 2 percent to a fresh session high and is close to

erasing the losses it made in December. Banks are getting a big boost, having been at the

epicentre of the stress surrounding the country's public finances due to their large holdings of

sovereign bonds.

The FTSE MIB is down just around 0.3 percent so far this month, while the broader STOXX 600

is down more than 5 percent. Sure, Italy's structural problems are far from being solved but

today is rally day.

(Danilo Masoni and Helen Reid)

*****

WHAT IF THE ECONOMIC SHOCKS OF 2018 ARE ALL PRICED IN NOW? (1159 GMT)

It's been a turbulent year all round and particularly for Europe and China where slowing

economic growth has dented asset prices. But is the worst now over?

In a 345-page global equity strategy opus, Credit Suisse (IOB: 0QP5.IL - news) 's Andrew Garthwaite and team

outline their view that there could be a brighter future around the corner for both regions,

backing European domestic stocks and small caps, as well as mining - a China play.

"The economic shocks of 2018 - China and Europe - are now largely in the price," write the

analysts.

Their favourite domestic demand plays in Europe are employment agencies, Spanish retail

banks, concessionaries, and airlines, while they're also overweight autos, gaming, and

cybersecurity.

CS also raises small caps to overweight, saying the smaller part of the market has far

greater exposure to domestic demand and is positively correlated with the euro, which they

expect to strengthen on the back of a positive growth surprise. They're also reasonably cheap,

and oversold, Garthwaite and team conclude.

Indeed small-caps have performed worse than large-caps in Europe this year as investors

sharply repriced their growth expectations for the region - but over five years they've

delivered more than three times the returns of large caps, as you can see below.

(Helen Reid)

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THE FED? "ITS BRIEF PHASE OF MACHO POSTURING IS OVER" (1113 GMT)

It's all about the Federal Reserve today and for Christopher Potts at Kepler Cheuvreux the

central bank won't confound investors following the sharp reversal in interest rate expectations

that we've seen over the recent weeks.

"We always said that Wall Street will decide when the Fed’s interest rate adjustment is

done," says Potts in his latest strategy update.

And then he adds: "Naturally, the Fed will validate the market reassessment: its brief phase

of macho posturing is over" - which means Fed policymakers should raise rates today and announce

a pause which will be indefinite.

Current Fed projections still see three more increases before 2020 but traders of interest

rate futures do not even think there will be one hike next year, as you can see in the snapshot

below with rate probabilities from CME Group (Kuala Lumpur: 7018.KL - news) .

That being said, here are Potts' latest recommendations:

* Under-performance of leadership growth stocks to dominate until around mid next year

* We upgraded emerging equity to overweight at the start of December to reflect the end of

US

interest rate rises and a weaker dollar

* The next logical step is to downgrade US equity from a tactical perspective

* The forex factor should even allow pan-European equity to perform marginally better than

the US

in common currency terms through to the middle of next year

* When the current phase of equity de-rating is exhausted and funds return to the growth

style we

expect American equity out-performance to resume

The Fed statement is due at 1900 GMT. Here's our preview from Washington.

(Danilo Masoni)

*****

OPENING SNAPSHOT: ITALY LEADS EUROPEAN MARKETS UP AFTER EU BUDGET DEAL (0821 GMT)

European stocks have opened higher across the board with the euro zone STOXX index up 0.3

percent and Italy's FTSE MIB by far the leader, jumping 1.5 percent after an Economy Ministry

spokeswoman said Italy has done a deal with the European Commission over its contested 2019

budget. Italy's banks index is jumping 3.6 percent, set for its strongest day in

three weeks.

On the stock-specific side GSK leads, Natixis (LSE: 0IHK.L - news) is lagging and XXL (LSE: 0R3P.L - news) is plummeting 40 percent

after its profit warning.

The UK pharma giant's shares are up 5.5 percent after it announced a new joint venture with

Pfizer's consumer health division and said it plans to split into two businesses - one for

prescription drugs and vaccines, the other for over-the-counter products - afterwards.

Shares (Berlin: DI6.BE - news) in French bank Natixis are down 6.5 percent after it booked 260 million euros of

losses and provisions on poorly-performing Asian derivatives.

Norwegian sports equipment retailer XXL is plunging 40 percent after its severe profit

warning and the exit of its CEO. The company said it's been "too aggressive" with price

discounts - something the whole fashion retail industry has suffered from

(Helen Reid)

*****

ON THE RADAR: SOME MORE GLOOM IN RETAIL (0751 GMT)

European stocks are expected to rise slightly at the open even if there isn’t much

visibility for the rest of the session with the Fed meeting after the close.

A rebound in oil prices is nevertheless expected to prop up energy stocks and help keep

benchmarks in the red. One exception at the moment is the FTSE, which is seen slightly down. As

an analyst pointed out this morning, the current level of the pound suggests traders aren’t

buying the no-deal drama.

Falling CPI figures at 0930 could however weigh on the pound.

Not a hell of a lot going on on the corporate front as Christmas narrows down trading but

there's some big M&A news on the FTSE with GlaxoSmithKline (Other OTC: GLAXF - news) saying it will combine its consumer

health businesses in a joint venture with Pfizer.

More doom and gloom for retail with Germany's Ceconomy expecting profits to fall in the

2018/19 financial year and Norway’s XXL which is seen falling up to 20 pct after a very negative

trading update.

Deutsche Post could also take a hit from Fedex results.

(Julien Ponthus)

****

EUROPEAN FUTURES OPEN - JUST SLIGHTLY - IN THE BLACK (0717 GMT)

Futures have started trading and they're up, albeit just slightly. The only exception is for

the FTSE which is slightly down.

There's a lot on the plate of British blue chips however with CPI data scheduled for 0930

GMT and the ongoing Brexit saga with the government activating plans for a no-deal exit.

Plans for post-Brexit immigration could also add to rising tensions as it will mark the end

of free movement from other European Union countries.

(Julien Ponthus)

*****

MORNING CALL: NOT MUCH VISIBILITY AHEAD OF THE FED (0620 GMT)

What will be today's trend, upwards or downwards, is anyone's call really. Indications from

financial spreadbetters aren't pointing to any particular direction currently.

IG (Frankfurt: A0EARV - news) gives London's FTSE opening 11 points lower, Frankfurt's DAX 2 points down and Paris' CAC

to rise 7 points.

For CMC Markets, the FTSE is expected to open 3 points lower, the DAX and the CAC 8 points

and 14 points higher respectively.

On the upside, oil prices have rebounded and there's speculation floating around that the

Fed might take a dovish stance at its policy meeting.

(Julien Ponthus)

****