LONDON- Six European Union states will scrap bans on short-selling shares introduced during bouts of extreme market volatility in March when national lockdowns were rolled out across the bloc to fight the Covid-19 pandemic.

The bloc's securities watchdog, the European Securities and Markets Authority (ESMA), said Austria, Belgium, France, Greece and Spain had decided not to renew short-selling bans that expire at 2159 GMT on Monday.

Italy has decided to lift its ban, due to expire on June 18, to align itself with the other five EU states, ESMA said.

French markets watchdog AMF said that since the implementation of the ban, it has observed a progressive normalisation in trading.

"Markets have partly reduced their losses, trading volumes and volatility have returned to levels that are still high compared to mid-February, however this reflects market participants’ uncertainties in the current context," the AMF said in a statement.

Equity strategists told Reuters the end of the bans underlined how liquidity had improved in major European countries, but questioned any impact the curbs had made.

"I don't think it (the ban) has made much of a difference, to be honest," said Kevin Gardiner, global investment strategist at Rothschild & Co Wealth Management. "I won't pretend that it had a material detrimental impact on capital markets that I have been able to see".

Equities has been out of favour over the past two months as investors have preferred safer assets such as gold.

"Short selling bets are not particularly sexy anyway," said Edmund Shing, global head of equity derivatives strategy at BNP Paribas, pointing instead to hopes of a recovery as lockdowns are gradually lifted.

The six bans left traders facing a patchwork of interventions in what is mean to be a seamless pan-European stock market of 27 countries at a time of extreme uncertainty.

Germany and Britain declined to introduce short-selling curbs.

Last week the World Federation of Exchanges, hedge funds industry associations AIMA and Managed Funds Association, and the European Principal Traders Association called on the French markets regulator and Finance Ministry to end the ban.

"Over the longer term, the bans risk undermining confidence in key European financial markets and hampering the goal of a Capital Markets Union, something that will be vital to European recovery from the profound economic shock caused by COVID-19," the letter said.

The ESMA itself has required holders of net short positions in shares to notify their national regulator if the position reaches or exceeds 0.1% of the issue share capital. This measures remains in force until June 16 and can be renewed.

(Reporting by Huw Jones; Editing by Toby Chopra and Alison Williams) ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters Messaging: huw.jones.thomsonreuters.com@reuters.net))