Shares gained 3.3% to 2.04 euros, ending the session for the first time above the price of the cash call the Tuscan bank concluded in early November.

Monte dei Paschi raised more than 10 times its then-market value, offering a much smaller discount than is customary for such issues because of its shrunken capitalisation in relation to the cash call's size.

As part of the operation, Italian taxpayers put another 1.6 billion euros ($1.69 billion) into the bank they had rescued in 2017 at a cost of 5.4 billion euros.

French insurer AXA was the second biggest investor after the Italian state.

The European banking sector is currently in a sweet spot, with higher interest rates boosting income from the core lending business while not yet pushing funding costs significantly higher or impairing borrowers' ability to meet their obligations.

A Milan-based trader, speaking on condition of anonymity, said the sector was well positioned going into 2023 and Monte dei Paschi in particular was a stock that "had come out of the woods" and had room to rise further to 2.2-2.3 euros.

($1 = 0.9449 euros)

(Reporting by Giancarlo Navach; Writing by Valentina Za; Editing by Gavin Jones)