A roundup of trading on major world markets:
NEW YORK – The Dow Jones industrial average dropped more than 400 points after Italy’s borrowing costs soared and talks collapsed in Greece on forming a new government.
The yield on the benchmark Italian government bond spiked above seven per cent, evidence that investors are losing faith in the country’s ability to repay its debt.
Greece, Portugal and Ireland required bailouts when their bond yields rose above the same mark.
Unlike those countries, Italy’s $US2.6 trillion ($A2.51 trillion) in debt is too large for other European countries to rescue.
In Greece, power-sharing talks fell apart between the country’s two main political parties, raising doubt about whether the country will be able to receive the next instalment of emergency loans it needs to avoid default.
Italian Premier Silvio Berlusconi promised late Tuesday to step aside after a new budget is passed, but there are concerns that the transition to a new government will be difficult.
Markets see Berlusconi as an impediment to the kind of far-reaching economic reforms Italy needs to remain solvent.
With an hour left of trade, the Dow was down 371.49 points, or 3.05 per cent, at 11,798.69.
The S&P 500 had lost 42.59 points, or 3.34 per cent, to 1,1,233.33.
The Nasdaq composite was down 106 points, or 3.89 per cent, to 2,621.49.
Materials and financial companies fell the most. Morgan Stanley fell eight per cent and coal producer Alpha Natural Resources fell eight per cent.
Markets fear that a chaotic default by either Greece or Italy would lead to huge losses for European banks.
That, in turn, could cause a global lending freeze that might escalate into another credit crisis similar to the one in 2008 after Lehman Brothers fell.
LONDON – European stocks closed sharply lower as any early optimism that the resignation of Italian Prime Minister Silvio Berlusconi would calm the markets disappeared in a wave of near panic.
Dealers said investors first thought Berlusconi’s decision would clear the decks but as it became clearer that Italy faces possibly months of political uncertainty, they decided on safety first and put their money elsewhere.
Italian borrowing rates soared as a result to seven per cent and above, levels judged to be unsustainable in the longer term and putting its already strained public finances under even more pressure.
In the fallout, stock markets stumbled badly and the euro tumbled as investors flocked into safe haven US and German government bonds, seen as the benchmark holdings to have in troubled times.
In London, the FTSE-100 index of top companies closed down 106.96 points, or 1.92 per cent, at 5,460.38 points.
In Paris, the CAC-40 lost 68.14 points, or 2.17 per cent, to 3,075.16 points.
In Frankfurt, the DAX 30 dropped 131.9 points, or 2.21 per cent, to 5,829.54 points.
Milan led the losers, falling 3.78 per cent after being down more than four per cent at one stage. Madrid, also seen as a possible eurozone debt crisis victim, was down 2.09 per cent.
HONG KONG – Asian markets rose on Wednesday after Italian Prime Minister Silvio Berlusconi promised he would quit, lifting hopes that Europe’s two-year-old debt crisis can be contained.
Adding to buying sentiment was data out of China showing that the country’s inflation had slowed sharply last month, raising the prospect that the government could start to ease monetary policy.
Beijing said Wednesday that its consumer price index – a key gauge of inflation – rose 5.5 per cent year-on-year, its slowest pace since May, after more than a year of monetary tightening measures.
The figure is well down from the three-year high of 6.5 per cent posted in July, and boosted hopes the government will ease up on liquidity restrictions.
Hong Kong was up 1.71 per cent, or 335.96 points, at 20,014.43 and Shanghai added 0.84 per cent, or 21.08 points, to end at 2,524.96.
Tokyo gained 1.15 per cent, or 99.93 points, to 8,755.44.
Seoul gained 0.23 per cent, or 4.39 points, to 1,907.53.
WELLINGTON – New Zealand shares rose, with the NZX 50 Index extending its gains from a month high, amid optimism Europe is making progress with its debt crisis.
The NZX 50 rose 2.32 points, or 0.1 per cent, to 3,353.56, the highest close since October 11.
Within the index, 18 shares rose, 14 fell and 18 were unchanged. Turnover was $NZ116.5 million ($A89.91 million).
