Despite the resurgence of geopolitical tensions in the Middle East following overnight U.S. strikes in Iran, stock indices continue to climb, trading near session highs.

In Milan, the market is being driven by the strength of the banking sector, the best performer in Europe, fueled by ongoing consolidation rumors and anticipation regarding the central bank's next moves. The market has fully priced in a 25-basis-point hike to 2.25% for the deposit rate at this afternoon's ECB meeting, marking the first increase in three years.

Brent crude prices remain below $100 per barrel despite the escalation in geopolitical friction.

As of 12:45 p.m., the FTSE Mib is up 1.31%, trading at its session highs. Trading volumes stand at €1.1bn.

Today's featured stocks:

** The banking index is up 0.8%, with heavyweights INTESA and UNICREDIT rising in line with the broader market. BANCO BPM also gained 0.95%, reaching its highest level since March 2011 at €14.26. The stock had briefly taken a backseat in the latest wave of banking consolidation following last Monday's announcement of Intesa's exchange offer for MPS (+0.68%).

** Within the blue-chip index, momentum continues for STM, which is advancing by approximately 4%. Yesterday, BofA upgraded the stock to 'buy' from 'neutral' and raised its price target to €86, forecasting a significant profit turnaround for the Franco-Italian chipmaker.

** Interest has returned to the energy sector, particularly SAIPEM, which jumped over 3% after the oil services firm secured an onshore contract in Saudi Arabia for the Uthmaniyah Gas Compression Plant project. The deal is worth approximately €900m to the company. According to Equita, 'the news is positive, as it confirms the strong commercial momentum in the Middle East that management had already highlighted during the first-quarter earnings call.'

** TENARIS and ENI also performed well, rising 1.3% and 1.1% respectively. Utilities are in demand, with A2A advancing 2.1% and ENEL up 1.4%.

** Defense stocks are climbing again following persistent geopolitical tensions. LEONARDO is up 2.1%, while FINCANTIERI is outperforming with a 4.5% jump.

** Luxury goods are also seeing bids, with FERRAGAMO and BRUNELLO CUCINELLI rising 1.8% and 0.9% respectively. MONCLER is also up 0.9%.

** On the downside, DIASORIN is retreating, down 1.34%.

** Finally, football stocks remain in favor today, with JUVENTUS growing 2.2% and LAZIO up 0.6%. The latter saw its gains trim after an initial 13% surge at the open, following a statement from the club 'categorically' denying press rumors regarding a potential sale of the company owned by Claudio Lotito.

(Giancarlo Navach, editing by Antonella Cinelli)