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LONDON, May 28 (Reuters) - Italian banks led a sharp European stocks rebound on Monday after the failure of anti-establishment parties to form a government lifted the euro zone's peripheral markets with the prospect of fresh elections.
The Five-Star and League parties abandoned efforts to form a government after Italy's President vetoed their choice of a eurosceptic economy minister, sending Italian bond yields lower and Italy's main FTSE MIB stock index sharply higher, while the euro also made gains.
The FTSE MIB had climbed 1.4 percent by 0720 GMT as financials and utilities stocks surged.
Italy's banks index jumped 3.1 percent, set for its biggest gain since January. Unicredit, UBI Banca , Banco BPM and Intesa Sanpaolo rose 2.2 to 2.8 percent.
Utility Enel, which had also been hurt by investors pricing in some of the coalition's policies on renewable energy, traded up 1.9 percent.
Banks fuelled a 0.2 percent gain in Europe's STOXX 600 , while Germany's DAX rose 0.5 percent. Britain's FTSE 100 was closed for a holiday and with U.S. markets also closed, trading volumes were thinner.
Spain's IBEX also rose 0.7 percent as the rally spread to other southern European markets. Spanish stocks had fallen sharply on Friday on concerns Prime Minister Rajoy would face a no confidence vote.
Financials and utilities led the recovery in Spain too, with Santander, BBVA and Caixabank top gainers along with Iberdrola and Gas Natural.
Danish biotech firm Genmab fell 24 percent after it ended combination trials of its multiple myeloma drug Darzalex with Tecentriq, citing "no observed benefit" and an increase in deaths after the combination treatment. (Reporting by Helen Reid Editing by Alexander Smith)