Shares in Italian bank Monte dei Paschi di Siena soared more than 10 per cent today on rumours that the Italian government is preparing a rescue bid.
According to reports, Italy will take a €2bn (£1.7bn) controlling stake in the country's third biggest bank.
The surge in the bank's shares is a turnaround from the stock's performance on Monday, when it dropped following the resignation of Prime Minister Matteo Renzi.
Renzi planed to quit early on Monday morning after voters rejected his proposals to change the structure of Italy's parliament, in the country's referendum on constitutional reform. But the Italian President subsequently persuaded the Prime Minister to stay in office until a vital budget bill is passed later this month.
Shares closed up 10.78 per cent at the close.
The Italian government is already Monte dei Paschi's largest shareholder, with a four per cent stake in the business, but Reuters has reported that the state plans to buy junior bonds owned by members of the public in order to increase its share up to 40 per cent.
This would mean the Italian Treasury would have control over the world's oldest surviving bank and its shareholder meetings.
"It's a de-facto nationalisation with a strong presence by the state that can attract other investors and allow the transaction to be completed," a source told Reuters.
European markets were up this morning, and London Capital Group analyst Ipek Ozkardeskaya said the Monte dei Paschi rescue plan was the main driver for the stock rally.