By Michele Maatouk European stocks pared early gains Thursday, while the euro was flat against the dollar, as Italian political concerns surfaced and investors weighed some mixed data against the latest developments in the U.S. budget negotiations. The U.K.'s FTSE 100 stock index showed no reaction to the Bank of England's decision to leave interest rates on hold at 0.5% and the asset purchase program unchanged, as this was largely expected. The European Central Bank is also seen standing pat on rates, at 0.75%, when it makes its announcement at 1245 GMT. More broadly, mixed messages on the progress of the U.S. "fiscal cliff" talks kept investors cautious. Treasury Secretary Tim Geithner said Wednesday that the Obama administration was willing to allow the economy to go over the fiscal cliff if Republicans didn't agree to raise tax rates on the wealthy. President Barack Obama said he was hopeful that fiscal issues could be resolved in a week. UBS' expected the vast bulk of the cliff to be avoided and postponed and sees just a 10% probability of the economy going over the cliff. Although equity markets were fairly calm, the Stoxx Europe 600 index hit its highest intraday level since May 2011. The euro, which earlier gained to hit the day's high against the dollar after stronger than expected German industrial orders, eased to trade little changed against the greenback on Italian political worries. Italy's center-right party abstained from a parliamentary confidence vote on a government decree Thursday, stoking claims that Prime Minister Mario Monti's government may be near its end. Germany's DAX index outperformed its European peers on the industrial orders data, trading 1% higher. Earlier in the day, euro-zone third-quarter gross domestic product data confirmed the currency area is in recession. On the corporate front, shares in EADS rallied as investors welcomed its plan for a major share-structure overhaul. GDF Suez shares tumbled after it said its earnings this year would be hit by French energy tariffs. Bank of America Merrill Lynch downgraded the stock to neutral from buy, saying the guidance issued by GDF Suez late Wednesday suggests 2013 earnings per share would be around 10%-20% below consensus expectations. Other European utilities' shares followed suit, with E.ON and RWE falling. Deutsche Bank slipped, as U.S. securities regulators looked into allegations the bank hid billions of dollars of paper losses during the financial crisis, according to people close to the investigation. Rolls-Royce slumped after the company said it has passed information to the U.K.'s Serious Fraud Office relating to allegations over bribery and corruption involving intermediaries in overseas markets. U.S. futures indicated a flat open on Wall Street, where investors will watch the release of initial jobless claims at 1330 GMT, ahead of Friday's key nonfarm payrolls release.

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