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Stock markets across Europe rattled by Italy crisis

Italy’s main stock index ended the session down 2.65%, after earlier sinking to a 10-month low.

Italy’s bond market also suffered a steep sell-off. The yield on 10-year debt hit 3.133% – a level not seen since 2014 – although it recovered slightly to 2.9% towards the end of the trading day.

A rise in bond yields means the Italian government is paying more interest on its debt.

Stock markets across Europe rattled by Italy crisis
Stock markets across Europe rattled by Italy crisis

Bank shares were also down, slumping by almost 5% to a 13-month low, bruised by a sell-off in Italian government bonds, a significant part of the banks’ portfolios.

Intesa Sanpaolo, BPER Banca, Unicredit and UBI Banca fell sharply, down by 4% to 5.6%, while Poste Italiane also tumbled 4.5%.

Italy’s central bank warned the country was only “steps” away from losing investors’ confidence.

Carlo Cottarelli

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“We must never forget that we are only ever a few short steps away from the very serious risk of losing the irreplaceable asset of trust,” Ignazio Visco, the governor of the Bank of Italy, said.

Italy has been without a government since inconclusive elections on 4 March, at which voters flocked to anti-establishment and far-right parties the Five Star Movement and League Nord to leave a hung parliament.

Carlo Cottarelli, a former International Monetary Fund official, has accepted a mandate to form a technocratic and politically “neutral” government, but has admitted Italians could face a snap poll if he does not win parliamentary support for his interim administration.

A man stands to look electoral posters in Pomigliano D'Arco, near Naples, Italy, February 21, 2018

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Investors fear there is a risk of the eurozone breaking up as fresh elections might give the two populist parties a more eurosceptic mandate.

Renewed concerns caused the Frankfurt-based Sentix research group’s eurozone break-up index to climb to its highest level since April 2017, when investors feared a eurosceptic Le Pen presidency in France.

In afternoon trading on Wall Street, the Dow Jones Industrial Average dropped 1.77%

Carlo Cottarelli

2:23

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The FTSE 100 closed down 1.26% – its lowest level in almost three weeks – as it resumed trading after the bank holiday weekend. RBS and Barclays were among the biggest fallers with shares tumbling more than 3%.

The stress in Italy also spread to other eurozone markets, with Portuguese stocks sliding by 2.6%,

In Spain, which is in the throes of its own political crisis as Prime Minister Mariano Rajoy faces a no-confidence vote later this week, stocks closed down 2.4%.

Banco Santander, the eurozone’s biggest bank by market capitalisation, fell by 5% and BBVA by 4%.

The pan-European STOXX 600 fell by 1.37% – with banks the worst-performing, while the eurozone’s banks index tumbled by 4.3% and was on track for its biggest monthly drop since the Brexit vote in June 2016.

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