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European stocks fall on Italy's debt crisis concerns Italy debt worries keep European markets on edge
(40 minutes later)
  
European shares opened lower on Thursday after Italy's record high cost of borrowing renewed fears over the eurozone debt crisis. European markets remained jittery on Thursday after Italy's record high cost of borrowing renewed fears over the eurozone debt crisis.
The falls came after markets in Asia had dropped steeply. At open, the German Dax was down 1.23%, the French Cac by 0.77% and the FTSE by 1.1%. After opening lower, markets in Germany and France rebounded to show slight gains in early morning trade, but the UK's FTSE index was slightly down.
Yields on Italian 10-year bonds were 7.28%, a level seen as unsustainable.Yields on Italian 10-year bonds were 7.28%, a level seen as unsustainable.
A closely-watched auction of 5bn euros ($6.7bn; £4.2bn) of Italian short-term Treasury bills takes place shortly. A closely-watched auction of 5bn euros ($6.7bn; £4.2bn) of Italian short-term Treasury bills is due shortly.
Earlier in the day, Japan's Nikkei index had fallen by 2.9%, South Korea's Kospi shed 3.8% and Hong Kong's Hang Seng dropped 4.4%. Earlier in the day, Japan's Nikkei index had fallen by 2.9%, South Korea's Kospi shed 3.8% and Hong Kong's Hang Seng index dropped 5.3%.
The falls in Asia followed losses in the US markets. Among the European markets, Germany's Dax index was up 0.22% at 5,842.16, the French Cac 40 index was 0.4% higher at 3,087.38, while the UK's FTSE 100 was down 0.5% at 5,434.06.
'Challenge' 'Radical solutions'
The high interest rate on Italian bonds means that if Italy were to borrow money today, with the aim of paying it back in 10 years, it would have to pay an interest of 7.35%. The high interest rate on Italian bonds means that if Italy were to borrow money today, with the aim of paying it back in 10 years, it would have to pay an interest of more than 7%.
However, Italy has a low growth rate, which means it would be virtually impossible for it to repay what it owes.However, Italy has a low growth rate, which means it would be virtually impossible for it to repay what it owes.
Analysts said action needed to be taken in order to calm the markets.Analysts said action needed to be taken in order to calm the markets.
"Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy," said Frederic Neumann from HSBC in Hong Kong."Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy," said Frederic Neumann from HSBC in Hong Kong.
"We need radical solutions at this point to backstop the markets.""We need radical solutions at this point to backstop the markets."
Shares of banks in both Japan and Australia were hit particularly hard. In Tokyo, Sumitomo Mitsui Financial Group tumbled 5.3%, while Mizuho Financial Group fell 3.8%.Shares of banks in both Japan and Australia were hit particularly hard. In Tokyo, Sumitomo Mitsui Financial Group tumbled 5.3%, while Mizuho Financial Group fell 3.8%.
In Sydney, Westpac Banking Corporation dropped 3.6%, to its lowest level in a month.In Sydney, Westpac Banking Corporation dropped 3.6%, to its lowest level in a month.
Economists are concerned that the global banking system could still be affected, regardless of whether there is a resolution to the eurozone crisis.Economists are concerned that the global banking system could still be affected, regardless of whether there is a resolution to the eurozone crisis.
"Whatever they come up with, it doesn't avoid a European recession," said Su-Lin Ong at RBC Capital Markets."Whatever they come up with, it doesn't avoid a European recession," said Su-Lin Ong at RBC Capital Markets.
"Increasingly, there is a risk that it spills into the banking system and becomes an issue of credit, and the lifeline of economies freezes up again," she said."Increasingly, there is a risk that it spills into the banking system and becomes an issue of credit, and the lifeline of economies freezes up again," she said.
Last month, in an attempt to ease concerns about the Greek debt crisis, eurozone leaders asked banks to raise more capital to protect themselves against any losses resulting from future defaults by Greece.Last month, in an attempt to ease concerns about the Greek debt crisis, eurozone leaders asked banks to raise more capital to protect themselves against any losses resulting from future defaults by Greece.
At the same time, banks also accepted a 50% loss on the money they had lent to Greece.At the same time, banks also accepted a 50% loss on the money they had lent to Greece.
The fear is that if Italy's debt crisis worsens, similar measures may have to be taken by banks that are exposed to its debt.The fear is that if Italy's debt crisis worsens, similar measures may have to be taken by banks that are exposed to its debt.
Euro weakens Currency moves
Meanwhile, the euro continued to weaken on Thursday, touching a one-month low of $1.35 against the US dollar, and a two-week low of 105.1 yen against the Japanese currency.Meanwhile, the euro continued to weaken on Thursday, touching a one-month low of $1.35 against the US dollar, and a two-week low of 105.1 yen against the Japanese currency.
As uncertainty about the outcome of the eurozone debt crisis continues, many investors have been ditching the euro and euro-based assets.As uncertainty about the outcome of the eurozone debt crisis continues, many investors have been ditching the euro and euro-based assets.
Analysts warned the euro may fall further in coming sessions as investors turn to what they see as safer assets.Analysts warned the euro may fall further in coming sessions as investors turn to what they see as safer assets.
They said that authorities needed to take decisive action in order to restore confidence in the markets.They said that authorities needed to take decisive action in order to restore confidence in the markets.
"The markets were basically in a panic yesterday and the only thing that can give the euro at least a temporary respite is quick action from the European Central Bank to lower Italian yields," said Koji Fukaya at Credit Suisse."The markets were basically in a panic yesterday and the only thing that can give the euro at least a temporary respite is quick action from the European Central Bank to lower Italian yields," said Koji Fukaya at Credit Suisse.