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Asian stocks fall on fears of Italian election deadlock European markets fall after Italian election deadlock
(about 1 hour later)
Asian stocks have fallen in trading on Tuesday, trailing European and US shares lower, amid fears of renewed instability in the eurozone. European markets have opened lower, following inconclusive election results in Italy, and amid fears that political deadlock will delay economic reforms.
The trigger for the declines was an inconclusive election result in Italy, and the fear that political deadlock would delay economic reforms. Italy's FTSE MIB index fell 4.7%, while London's FTSE 100 shed 1.5% and share markets in Frankfurt and Paris also fell more than 2% at the start.
Italian government bonds also fell sharply, implying markets are wary of lending to Italy.
Earlier, stock markets in Asia finished lower.
Japan's main Nikkei 225 stock index lost 2.2%, Hong Kong's Hang Seng fell 0.8% and Australia's ASX was down 1%.Japan's main Nikkei 225 stock index lost 2.2%, Hong Kong's Hang Seng fell 0.8% and Australia's ASX was down 1%.
Exporters led the drop in Asia on concerns sales to Europe would suffer.Exporters led the drop in Asia on concerns sales to Europe would suffer.
With all domestic votes counted in Italy's parliamentary election, the centre-left bloc won the lower house by a tiny margin, but did not secure a majority in the Senate.With all domestic votes counted in Italy's parliamentary election, the centre-left bloc won the lower house by a tiny margin, but did not secure a majority in the Senate.
Fears are that a split parliament will make it harder for one group to push through their plans to revive the economy, and that may even stall Italy's process of cutting its public debt levels.Fears are that a split parliament will make it harder for one group to push through their plans to revive the economy, and that may even stall Italy's process of cutting its public debt levels.
Giuseppe Fontana, professor of monetary economics at Leeds University Business School, said Italian voters had sent a "chilling message" to the markets and policy makers.
"It is not difficult to speculate that this morning markets and policy makers are asking the big question - what is the future of the euro area?" he told the BBC.
"Italy is the third largest economy in the eurozone area and there is a question about is this a way, a democratic way, to tell markets and policy makers to change course about austerity measures and start to stimulate again the economy?"
Georg Grodzki, head of credit research at Legal & General Investment Management, said the Italian result would leave markets guessing for a while.
"Uncertainty is not good for confidence. It's not bad enough for an immediate abrupt sell-off but it could well build over the next few months into some crisis," he said.
'Safe haven'
Companies in Asia such as electronics maker Sony and camera firm Nikon still get a large share of their revenue from Europe, and analysts said any worsening of economic conditions and consumer sentiment could knock sales.Companies in Asia such as electronics maker Sony and camera firm Nikon still get a large share of their revenue from Europe, and analysts said any worsening of economic conditions and consumer sentiment could knock sales.
"It revives memories of risks in the eurozone," said Yuji Saito from Credit Agricole in Tokyo. "I doubt that the situation will turn into a disaster, but we need to carefully monitor developments.""It revives memories of risks in the eurozone," said Yuji Saito from Credit Agricole in Tokyo. "I doubt that the situation will turn into a disaster, but we need to carefully monitor developments."
'Safe haven'
The fall in Japanese shares come after the Tokyo market has enjoyed a surge in recent months, as the value of the yen fell steeply after steps by the central bank to extend its asset-purchase programme.The fall in Japanese shares come after the Tokyo market has enjoyed a surge in recent months, as the value of the yen fell steeply after steps by the central bank to extend its asset-purchase programme.
Critics have accused Tokyo of deliberately weakening the currency to help its struggling exporters abroad.Critics have accused Tokyo of deliberately weakening the currency to help its struggling exporters abroad.
The yen rose steeply overnight as the uncertainty in Europe led investors to seek a safe-haven.
However, the gains were reversed on Tuesday and the yen was back on the decline as reports emerged that the new central bank chief would likely further loosen monetary policy.
In early trade, the yen was 92.52 against the US dollar, from 91.92 in New York on Monday.
"A negative impact (from Europe's problems) to the Japanese market is unavoidable for now, but hopes for Abenomics have not changed," said Takuya Takahashi, from Daiwa Securities, referring to the name given to the monetary policy championed by new prime minister Shinzo Abe to get Japan out of deflation."A negative impact (from Europe's problems) to the Japanese market is unavoidable for now, but hopes for Abenomics have not changed," said Takuya Takahashi, from Daiwa Securities, referring to the name given to the monetary policy championed by new prime minister Shinzo Abe to get Japan out of deflation.
The only major Asian market to buck the trend was Shanghai, which was slightly higher.The only major Asian market to buck the trend was Shanghai, which was slightly higher.
Investors are now looking towards testimony later on Tuesday from Federal Reserve Chairman Ben Bernanke.Investors are now looking towards testimony later on Tuesday from Federal Reserve Chairman Ben Bernanke.
Global markets were shaken last week by an indication from the Fed that it might scale back its strong monetary stimulus sooner than expected.Global markets were shaken last week by an indication from the Fed that it might scale back its strong monetary stimulus sooner than expected.
'Deadlock concerns''Deadlock concerns'
Global bank shares, the euro, and Italy's bond and stock markets fell back on Monday amid fear that Italy's deadlock may unleash new financial stress in the eurozone.Global bank shares, the euro, and Italy's bond and stock markets fell back on Monday amid fear that Italy's deadlock may unleash new financial stress in the eurozone.
Mr Berlusconi quit as prime minister in late 2011 amid a major financial crisis, and after markets and voters lost confidence in his ability to push through spending cuts and difficult labour market reforms.Mr Berlusconi quit as prime minister in late 2011 amid a major financial crisis, and after markets and voters lost confidence in his ability to push through spending cuts and difficult labour market reforms.
At the time, Italy was faced with spiralling borrowing costs in the bond markets, and the country's banks were forced to turn to the European Central Bank for emergency loans.At the time, Italy was faced with spiralling borrowing costs in the bond markets, and the country's banks were forced to turn to the European Central Bank for emergency loans.
Mr Berlusconi was replaced by a so-called technocrat caretaker Prime Minister, Mario Monti, a man who was not directly affiliated to any party and who looked to create a broad coalition that said it would focus on economic necessities not political point scoring.Mr Berlusconi was replaced by a so-called technocrat caretaker Prime Minister, Mario Monti, a man who was not directly affiliated to any party and who looked to create a broad coalition that said it would focus on economic necessities not political point scoring.
Mr Monti pushed through a plethora of unpopular economic reforms that helped regain the markets' trust but ultimately led to the break-up of his coalition as critics questioned his focus on austerity, higher taxes and cost cutting.Mr Monti pushed through a plethora of unpopular economic reforms that helped regain the markets' trust but ultimately led to the break-up of his coalition as critics questioned his focus on austerity, higher taxes and cost cutting.
On Monday, the Milan bourse, gave up earlier gains, ending the day only 0.7% higher.On Monday, the Milan bourse, gave up earlier gains, ending the day only 0.7% higher.
Italian bank stocks, which had surged more than 7% on hopes of a stable centre-left coalition government under Pier Luigi Bersani, also gave up most of their gains.Italian bank stocks, which had surged more than 7% on hopes of a stable centre-left coalition government under Pier Luigi Bersani, also gave up most of their gains.
The negative tone continued into US trading hours, with the Dow Jones falling steadily from mid-morning, to finish the day 1.6% lower.The negative tone continued into US trading hours, with the Dow Jones falling steadily from mid-morning, to finish the day 1.6% lower.
On the bond markets, Italy's cost of borrowing ended Monday higher at 4.49% per year, from 4.33% at the end of Friday, as the perceived riskiness of lending to the government rose.On the bond markets, Italy's cost of borrowing ended Monday higher at 4.49% per year, from 4.33% at the end of Friday, as the perceived riskiness of lending to the government rose.
The implied yearly cost of borrowing had fallen to 4.17% at one point, before news of the Senate results arrived.The implied yearly cost of borrowing had fallen to 4.17% at one point, before news of the Senate results arrived.
Meanwhile, on the currency markets, the euro - which had gained a cent against the dollar to $1.33 at one point - fell back again to $1.306, as hopes for greater political stability evaporated.Meanwhile, on the currency markets, the euro - which had gained a cent against the dollar to $1.33 at one point - fell back again to $1.306, as hopes for greater political stability evaporated.