Italian political uncertainty sends markets into spin

Mon Dec 10, 2012 8:33am EST
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By Marc Jones

LONDON (Reuters) - The euro slipped towards a two-week low on Monday while shares and Italian bond prices also fell after Italian Prime Minister Mario Monti's decision to resign deepened euro zone uncertainty.

Monti announced over the weekend he would resign once the 2013 budget is approved, raising questions over who will take the reins of the euro zone's third largest economy after elections expected in February.

The competent economist has become an investor favorite over the last year for guiding through a string of reforms and the prospect of scandal-tainted former leader Silvio Berlusconi launching a bid to reclaim power rattled markets.

Top European shares on the FTSEurofirst 300 index .FTEU3 fell as much as 0.5 percent and were down 0.3 percent by 8 a.m. EDT with Wall Street also expected to open lower.

A 3.5 percent fall on Milan's Ftse Mib .FTMIB and 2 percent on Madrid's IBEX .IBEX were flanked by smaller falls in London .FTSE, Paris .FCHI and Frankfurt .DAX in some of the biggest moves of the year.

The euro was trading near Friday's two-week low of $1.2876 before early afternoon support helped it climb back to $1.29125. In bond markets, Italian bonds fell sharply, with yields on benchmark 10-year debt up 36 basis points at 4.87 percent.

"The political maneuverings of Il Cavaliere (Berlusconi) have already caused the sharpest sell-off in Italian financial markets since ECB president Mario Draghi's game-changing pledge in late July," said Nicholas Spiro, head of Spiro Sovereign Strategy.

"Mr. Berlusconi is not the cause of Italy's deep-seated and long-standing economic problems, but he epitomizes the dysfunctional nature of Italian politics."   Continued...

A general view of the German stock exchange in Frankfurt November 7, 2012. REUTERS/Lisi Niesner