UPDATE 2-European shares lifted to 12-month high by Italy, looser monetary policy forecasts

* Italian banks climb after favourable EU decision
* Spanish utilities slip on report of looming return cuts
* Ex-div stocks cap gains on STOXX 600

(Updates to close)
By Susan Mathew and Medha Singh
July 4 (Reuters) - European shares closed at their highest
in more than a year on Thursday as Italian stocks surged on
relief that Rome had avoided European Union disciplinary action
and rising expectations of looser monetary policy by major
central banks.
The pan-European STOXX 600 index .STOXX rose 0.1%,
extending gains to a sixth straight session on optimism that
Christine Lagarde will stick to the ECB's dovish stance as the
central bank's next chief.
Milan's MIB .FTMIB rose 1% to hit its highest level in
almost a year, while its bank index .FTIT8300 soared 3.4%
after Italy persuaded the European Commission that new measures
submitted this week would help bring its growing debt in line
with EU fiscal rules. While Italy has dodged a bullet for now, disciplinary action
could be back on the agenda in the autumn when the 2020 budget
is drafted, ING senior economist Paolo Pizzoli said.
"As things stand, crafting a fiscally sound 2020 budget will
prove challenging."
Trading volumes were thin, with U.S. financial markets shut
for Independence Day.
Expectations of lower borrowing costs have helped European
equities recover from May's losses and resume their 2019 rally,
with the STOXX 600 up more than 16% this year.
Meanwhile, trade-sensitive autos sector .SXAP rose 0.4% on
news that top representatives from the United States and China
are arranging to resume talks next week. Also helping the auto stocks were gains in French car parts
company Valeo VLOF.PA after it won 500 million euros ($564
million) worth of orders for its 'Lidar' sensors. Capping gains were Spanish utilities as Enagas ENAG.MC and
Naturgy NTGY.MC which slipped 4.3% and 3.4% respectively on a
media report that Spain's antitrust authority would propose cuts
to allowed returns of electricity and gas networks. British Airways-owner IAG ICAG.L and Coca-Cola HBC CCH.L
were the top fallers on the pan-European benchmark index as
their shares traded ex-dividend.