European stocks, euro rocked by Italian turmoil

LONDON: European stock markets and the euro plunged again Tuesday as political uncertainty in Italy stoked fears about the country potentially crashing out of the eurozone.

Asset prices came off the day's worst levels briefly as Italian top bankers called for calm, saying that the economy is in decent shape despite political jitters, but then slid again towards the close.

Worries that Spain is also entering political crisis sparked further nervousness about the finances of the eurozone's southern flank.

The Milan and Madrid stock exchanges closed the day sharply lower, as did all the main European equity markets.

"The fear of another election and political uncertainty in Italy is driving significant losses throughout Europe," said Joshua Mahony, market analyst at IG traders.

Italy's 10-year bond yields surged to more than 300 basis points above Germany's, reflecting investor worry over the prospect of a fresh eurozone crisis.

Bankers tried but failed to stop the haemorrhage.

- 'Only emotional' -

"There can be only emotional reasons for what we are seeing on the markets today," said Bank of Italy governor Ignazio Visco.

Carlo Messina, the CEO of the Intesa Sanpaolo bank, said that "frankly, the fundamentals of the country a very solid" and that market movements were "completely disconnected" from the fundamentals.

The euro meanwhile struck the lowest level against the dollar since last July.

Italy, the eurozone's third-biggest economy after Germany and France, has been plunged into crisis with President Sergio Mattarella at the weekend vetoing the nomination of a fierce eurosceptic as economy minister.

The move led the prime minister-designate to step down, scuppering the bid by the anti-establishment Five Star Movement and the far-right League to form a government.

- 'Heightened uncertainty' -

Mattarella then named Carlo Cottarelli, a pro-austerity economist formerly with the International Monetary Fund, to lead a technocrat government, with another election likely in the autumn.

The chaotic developments have spooked investors, who fear another election could see a better result for the essentially anti-EU parties.

"We may now be in for an extended period of heightened uncertainty ahead of fresh elections," Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, said in a note to clients.

Adding to the selling pressure was a brewing crisis in Spain, where Prime Minister Mariano Rajoy faces a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.

Wall Street extended opening losses to match the extent of Europe's downturn approaching midday in New York.

Earlier Tuesday, Asian stock markets also closed mostly lower, with traders keeping an eye on oil prices, which have tanked since Saudi Arabia and Russia indicated they could raise output after abiding by a self-imposed cap for two years.

The comments come as supply worries increase, with major producer Venezuela hit by economic uncertainty, Iran facing painful export sanctions and demand seen picking up.

- Key figures around 1545 GMT -

Milan - FTSE MIB: DOWN 2.7 percent at 21,350 points (close)

Madrid - IBEX 35: DOWN 2.5 percent at 9,521.30 (close)

London - FTSE 100: DOWN 1.3 percent at 7,632.64 (close)

Paris - CAC 40: DOWN 1.3 percent at 5,438.06 (close)

Frankfurt - DAX 30: DOWN 1.5 percent at 12,666.51 (close)

EURO STOXX 50: DOWN 1.6 percent at 3,428.14

New York - DOW: DOWN 1.6 percent at 24,369.20

Tokyo - Nikkei 225: DOWN 0.6 percent at 22,358.43 (close)

Hong Kong - Hang Seng: DOWN 1.0 percent at 30,484.58 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,120.46 (close)

Euro/dollar: DOWN at $1.1553 from $1.1624

Pound/dollar: DOWN at $1.3254 from $1.3304

Dollar/yen: DOWN at 108.65 yen from 109.35 yen

Oil - Brent Crude: DOWN 6 cents at $75.26 per barrel

Oil - West Texas Intermediate: DOWN $1.28 at $66.60