The benchmark S&P/ASX200 index dropped 102.0 points to 4,244.1, tracking big falls on global markets, but they recovered slightly from a dive of more than three percent in morning trade. IG Markets analyst Stan Shamu said Italian debt yields jumping as high as 7.4 percent, levels that could make it impossible for Rome to keep servicing its huge debt, had erased any optimism seen earlier in the week. "After the run we had enjoyed in previous sessions, many would have been optimistic that we may finally see a solution to Europe's debt crisis," he said. "However, last night's sharp reversal would have definitely spooked some of the investors who were thinking of starting to dip their toes in the water yet again." Asian markets had reacted positively Wednesday after Prime Minister Silvio Berlusconi's announcement the day before that he would resign once a debt package has been passed in the Italian parliament. However, Italian 10-year bonds soared and stocks fell as dealers took flight at the prospect of a long bout of political uncertainty in Italy to on top of the deepening debt crisis in Greece, where leaders are bickering about a new government. The risk-based Australian dollar was also hit hard, slumping more than two US cents. It was trading at 101.44 US cents late in the session, down from 103.62 on Wednesday.