Shares were suspended after steep falls. They closed at €16.30 on Wednesday, but traded at lows of €14.71 after opening at €15.00. However, they then recovered quickly to a gain of more than three per cent, with the possibility of heavy volatility ahead.
MPS admitted late last night that its private-sector bailout plan was unlikely to succeed, after it failed to find an anchor investor.
The bank admitted it would use cash at a far quicker rate than previously envisaged, with shares slumping in response.
However, stocks in Italy were slightly up, as the rest of the index resisted any contagion.
Fashion companies received a seasonal boost, with shoewear brand TODS jumping in early trading, while eyewear company Luxottica Group gained half a per cent.
Stocks across the rest of Europe were flat in the traditional thin pre-Christmas trading, with the Dax regaining losses after a brief opening dip.
ITV led gains on the completely flat FTSE 100, gaining more than two per cent.
Inspection and certification company Intertek Group also increased, gaining over 1.3 per cent in morning trading.