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European markets fall after Italian election deadlock European markets fall after Italian election deadlock
(35 minutes later)
European markets have opened lower, following inconclusive election results in Italy, and amid fears that political deadlock will delay economic reforms. European markets have opened lower, with the inconclusive election result in Italy raising fears that political deadlock will 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.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. The yield on Italian government bonds also rose sharply, implying markets are more wary of lending to Italy.
Earlier, stock markets in Asia finished lower. Earlier, stock markets in Asia had closed 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.
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 stall Italy's process of cutting its public debt levels.
'Chilling message'
The yield on Italian 10-year government bonds rose to 4.77% from 4.48%, and the gap between the yield on Italian and German 10-year bonds widened.
Former Prime Minister Silvio Berlusconi, who has conceded the lower house to Pier Luigi Bersani's centre-left bloc, played down the significance of the spread, and said he was not worried about market reaction to the vote.
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.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."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?""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.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."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''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. In Asia, exporters led the drop in shares on worries that sales to Europe would suffer.
Companies 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."
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.
"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'
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.
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 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.
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.
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.
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.