European stock markets pared losses in choppy trade to finish nearly flat Wednesday, as investors responded positively to the European Central Bank's move to buy "peripheral" bonds, which helped to bring bond yields down slightly from elevated levels. Still, signs of economic weakness in the U.K., together with worries about funding for Italian lender UniCredit, added to pressure on markets.

Stocks were comforted by the ECB's move to buy Italian, Spanish and Portuguese government bonds, bringing yields down and lifting European shares. "This has offered a slight relief for markets, especially in Italy where bond yields are now firmly below the important 7% again, which has led to moderate short covering in the stock market," said Markus Huber, head of German sales trading at ETX Capital

By the European close, the 10-year Italian bond yield was at 6.9%, just below the critical 7% level. At the same time, the 10-year Spanish bond yield was at 6.38% and the Portuguese 10-year bond yield hit 12.30%. Meanwhile, Italy's FTSE MIB index rose 0.8% as the country's new prime minister, Mario Monti, announced that he will also serve as finance minister while leading the new government.

Overall, the Stoxx Europe 600 index ended nearly flat at 237.04, off its session low of 235.47. Among national indexes, the U.K.'s FTSE 100 index fell 0.2% to 5509.02, while France's CAC-40 index closed 0.5% higher at 3064.90 and Germany's DAX index closed down 0.3% at 5913.36.

Additionally, economic data out of the U.S. has helped markets perk up. Wednesday's better-than-expected data follow Tuesday's similar upbeat tone out of the U.S. economy. Industrial production climbed 0.7% in October, topping expectations, though September's figure was revised downward. The National Association of Home Builders housing-market index continued its upward trend in November, up to 20 from 18.

Separately, consumer prices fell 0.1% in October, while so-called core inflation, which excludes energy and food costs, rose by 0.1%. Economists had forecast no change in the headline number, and a 0.1% gain in the core inflation figure.

"The data from the U.S. Wednesday confirms the world's largest economy might not be as weak as many had feared, but it still remains vulnerable towards further turmoil coming out of Europe," added Huber.

As such, stocks on Wall Street failed to move higher on the upbeat data with the Dow Jones Industrial Average down 0.5% late in Europe, while the Standard & Poor's 500-stock index slid 0.4%.

A grim Inflation Report by the Bank of England added pressure on the U.K. market and on sentiment in general earlier in the day. The central bank's Governor Mervyn King said the U.K.'s economy could be flat until the middle of next year, adding that he had no idea how the euro zone's debt crisis will eventually be resolved. At the same time, data showed that the U.K. unemployment rate rose to 8.3% in October, the highest since 1996.

Adding further weight onto markets, Italy's UniCredit chief executive said he will ask the ECB to consider widening the kind of collateral that banks can provide in exchange for funding, an Italian newspaper reported Wednesday. The report comes after Moody's Investors Service placed the Italian bank on review for a possible downgrade. The Stoxx Europe 600 banks index pared losses to finish flat on the ECB's bond-buying action, which in turn helped UniCredit's shares gain 1.4%.

In currency markets, the euro had initially recovered on easing Italian bond yields but was lower against the dollar by the European close at $1.3499 from $1.3541 late Tuesday in New York.

Also late in Europe, the December futures contract for gold on the Comex division of the New York Mercantile Exchange was $12.20 lower at $1,770.00 per troy ounce. In late Europe, light, sweet crude for November delivery was up $2.74 at $102.11 a barrel.

Write to Ishaq Siddiqi at