European stocks rally for second day as banks jump

European stock markets rallied for a second straight session on Monday, with bank shares leading the charge higher after news the European Central Bank may buy Italian bad loans.

Markets were also boosted by an overall positive day in Asia, where Japan’s Nikkei NIK, +7.16% surged 7.2% after closing at the lowest since October 2014 on Friday.

The Stoxx Europe 600 index SXXP, +2.86% jumped 2.6% to 320.52, setting it on track for the highest close in more than a week.

Banks were among biggest advancers, with the region’s banking index FX7, +3.57% rising 3.4%. The rally came after news the ECB is talking with the Italian government about buying bad loans from the country’s banks as part of its asset-purchase scheme and accept them as collateral, according to Reuters.

Italian banks, which have been among worst performers during this year’s selloff in the financial sector, rallied on the report. Shares of Unipol Gruppo Finanziario SpA UNI, +8.05% jumped 7.3%, Banco Popolare SC BP, +8.28% climbed 6.8%, Banca Monte dei Paschi di Siena SpA BMPS, +8.12% rose 6% and Banca Popolare di Milano Scarl PMI, +7.22% gained 6.2%.

Other banks also jumped, with shares of Eurobank Ergasias SA EUROB, +29.94% up 19% in Athens and Credit Suisse Group AG CSGN, +3.89% rising 4.9%.

ECB President Mario Draghi will talk in front of the European Parliament for his quarterly hearing at 2 p.m. London time, or 9 a.m. Eastern Time. Investors will look for any hints the central bank is preparing more monetary easing to boost inflation.

Trading volume is expected to lighter than usual as U.S. trading is closed for the President’s Day holiday.

Other movers: Shares of H&M Hennes & Mauritz AB HMB, +2.90% advanced 2.6% after the Swedish clothing retailer said total sales rose 7% in January.