Italy gridlock shakes up global markets


The U.S. Dollar continued to lose ground against a basket of major currencies on Thursday as investors assessed the potential impact of a euroskeptic government in Italy on the stability of the European Union and its use of the Euro as its currency.

The Frankfurt-based Sentix research group said its monthly "euro break-up" index, based on a survey of around 1,000 institutional and retail investors, more than doubled to 13 percent from 6.3 percent in April.

In Europe, Britain's FTSE 100 sank 1.3 percent to 7,633 while France's CAC 40 fell 1.3 percent to 5,434.

ASIAN SCORECARD: Japan's Nikkei 225 index fell 0.1 percent to 22,171.35 and the Shanghai Composite index tumbled 0.7 percent to 3,075.14. Many view the 10-year as a proxy for longer-term growth and inflation expectations, and a thus signal for where the US economy is headed. Australia's S&P ASX 200 fell 0.6 percent to 5,979.00.

Investors dumped Italian government bonds, driving borrowing costs sharply higher for that country and rekindling fears of more financial strain for Europe's third-largest economy.

CURRENCIES: New jitters about the stability of the euro sent the currency's value against the dollar to its lowest level in nearly a year.

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Bank stocks declined along with the falling bond yields, which force interest rates on loans lower.

The political upheaval in Italy is likely to lead to new elections in the next few months, and investors are interpreting the new vote as a referendum and that Italy could move closer to abandoning the currency if populist parties win the election. JPMorgan Chase lost 1.4 percent to $109.07 and Bank of America fell 1.3 percent to $29.76.

The euro struggled near a six-and-a-half-month low, and the pound hit a six-month low against a rallying dollar amid signs of panic in European bond markets. By mid-afternoon Asia time it was at 2.81 percent. Germany's DAX was also 1.3 percent lower at 12,699. The Russell 2000 index fell far less than the Dow average, giving up 3.28 points, or 0.2 percent, to 1,623.65.

Seoul dropped 0.6 percent, while Wellington, Taipei and Manila were also off. More tellingly, German 10-year debt, a safe haven asset for nervous investors, enjoyed its best weekly gain since the acute phase of the euro-zone debt crisis in mid-2012, according to data from Bloomberg.

ENERGY: Benchmark U.S. crude fell 57 cents to $67.31 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price worldwide oils, added 78 cents to $76.08 per barrel in London. Hong Kong's Hang Seng index plunged 1 percent to 30,484.58. Brent crude, used to price global oils, shed 38 cents to $75.11 a barrel in London.

Elsewhere Spanish equities rose 1.8 percent after Spanish socialist Pedro Sanchez was catapulted to power, taking over as prime minister from veteran conservative Mariano Rajoy, who lost a no-confidence vote in the wake of a corruption scandal.