By Devik Jain and Amruta Khandekar

(Reuters) -Shares in Italy outperformed European peers on Monday after the right-wing coalition led by Georgia Meloni overwhelmingly won the national election, while bourses elsewhere fell amid risk aversion following central bank tightening.

The Europe-wide STOXX 600 index fell 0.4%, closing near December 2020 lows following a sharp sell-off last week when data showing a downturn in economic activity in the region and tightening by several global central banks deepened fears of a recession.

Traders bet a UK interest rate hike could be imminent after the pound plunged to a record low against the dollar in the wake of a poorly received fiscal package on Friday.

The FTSE 100 was flat, while the UK mid-caps index dropped 1.4% to near two-year lows.

“It’s basically repricing of macro risks,” said Andrea Cicione, head of strategy at TS Lombard. “The UK has been a major catalyst for investors to reprice higher market risk, and now that the market is pricing in a lot more weakness in sterling, it’s trying to find a bottom.”

“I think we’re going to see much more volatility in the days to come and markets will test how determined central banks are, how determined governments are to carry on with their measures.”

Italy’s FTSE MIB index was up 1%, boosted by financial stocks, after the centre-right coalition won a clear majority in both houses of parliament, potentially giving Italy a rare chance of political stability after years of upheaval and fragile coalitions.

A right-wing government will not alter significantly Italy’s economic fundamentals, rating agency DBRS said. Meloni, set to become Italy’s first woman prime minister, has pledged to back Western policy on Ukraine and not take risks with Italy’s fragile finances.

Europe’s biggest economy, Germany, saw its main index slip 0.5%, extending last week’s declines after data showed a bigger-than-expected drop in German business sentiment in September.

The STOXX 600 has lost 6.4% so far this month, heading for its second straight month of decline, as Europe grapples with energy and cost of living crises amid the Russia-Ukraine war hampering gas flows, and hawkish central bank moves to combat inflation.

Banks, healthcare and some defensive sectors led declines on Monday.

Among individual stocks, Belimo Holding jumped 8.5% after Berenberg upgraded the Swiss heating and ventilation solutions maker’s stock, saying the market was not fully pricing in the company’s growth potential.

(Reporting by Devik Jain, Amruta Khandekar and Susan Mathew in Bengaluru; Editing by Subhranshu Sahu and Mark Potter)