Stock markets in Europe bounced higher early on Wednesday as traders decided to pick up stocks trading down at discount levels following three days of losses and Italy's credit downgrade late on Tuesday.

Moody's cut Italy's credit rating from Aa2 to A2 with a negative outlook, blaming “material increase in long-term funding risks for the euro area,” the ratings agency said in a statement.

The FTSE 100 index was up 2.2 percent to 5,053.38, Germany's DAX 30 added 2.1 percent to 5,324.60, and France's CAC40 rose 2.5 percent to 2,921.

Lenders also gained with Deutsche Bank up 5.5 percent and BNP Paribas in Paris rising 6.99 percent to €29.08.