1:00 PM Frankfurt – The European indexes rebounded after the German economy expanded more than estimated in the first quarter. Rating agency downgraded 26 Italian banks. Greece sold €1.3 billion of three-month T-bills at higher borrowing costs.

The European indexes rose after the German economy expanded more than estimated in the first quarter. However, the euro area economic growth remained flat.

Also weighed on the market sentiment was the weak outlook from two largest German steelmakers, ThyssenKrupp and Salzgitter. ThyssenKrupp said operating profit will slump in the year and Salzgitter estimated pre-tax profit will be below the last year’s results.

As usual rating agencies lagged market perception and Moody''s downgraded the long-term debt and deposit ratings for 26 Italian banks.

François Hollande was sworn in as the new President of France today and in a short speech focused on the difficult task ahead and noted that the country “cannot have sacrifices on one side and privilege on the other.”

Hollande is scheduled to meet the German Chancellor Angela Merkel later this evening.

Talks between the Greek president Karolos Papoulias and political leaders are not yielding any success in forming a coalition government as none of the three leading parties appear to compromise.

The president has mooted the idea of a “technocrat” government to the party leaders to avoid fresh elections. However, the party leaders’ reaction is somewhat muted leading to speculation that the Greek political parties prefer another election.

During the euro area finance ministers'' meeting in Brussels yesterday, Eurogroup President Jean-Claude Juncker urged the Greek politicians to form a coalition government and adhere to the austerity measures.

He further added, ""I don''t envisage, not even for one second, Greece leaving the euro area. This is nonsense, this is propaganda.""

Rating agency Moody''s Investors Service on Monday downgraded 26 Italian banks’ long-term debt and deposit ratings by one to four notches. The debt and deposit ratings declined by one notch for 10 banks, two notches for eight banks, three notches for six banks, and four notches for two banks.

The rating outlooks for the banks downgraded are negative.

Moody''s said the ratings for Italian banks now are among the lowest within advanced European countries, reflecting these banks’ susceptibility to the adverse domestic and European operating environment.

UniCredit SpA, Intesa Sanpaolo SpA, Banca Monte Dei Paschi, Banco Popolare, and Unione di Banche Italiane are among the banks that were downgraded by the rating agency.

The Italian economy fell into a deeper recession in the first quarter, preliminary data from the statistics office Istat showed today.

Gross domestic product dropped 0.8% in the first quarter, following a 0.7% fall in the fourth quarter.

In Paris trading, the CAC-40 Index gained 22.71 or 0.7% to 3,080.70 and in Frankfurt the DAX Index edged higher 14.05 or 0.2% to 6,466.83.

The yield on Spain’s benchmark 10-year bonds was at 6.28% and on the 10-year Italian bonds was 5.91%.

Greek Bond Auction

Greece sold €1.3 billion of three-month T-bills at an average yield of 4.34% compared to an average yield of 4.20% from a previous auction on April 17. The bid-cover ratio fell to 2.32 from 2.46 in the April auction.