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Markets zigzag on Italy elections Markets fall on fear of Italy post-election deadlock
(about 3 hours later)
Markets have swung sharply in anticipation of the outcome of Italy's parliamentary elections. Markets have fallen in anticipation of political deadlock in Italy following parliamentary elections there.
Italy's bond and stock markets, bank shares and the euro rallied after exit polls suggested the centre-left would win a lower house majority. Exit polls suggest the centre-left has won a lower house majority, while early count data gave Silvio Berlusconi's centre-right the lead in the Senate.
But they lost all their gains in late trading after early count data gave Silvio Berlusconi's centre-right party the lead in the Italian Senate. Global bank shares, the euro, and Italy's bond and stock markets slumped on fear the results may unleash renewed financial stress in the eurozone.
Mr Berlusconi quit as Prime Minister in 2011 amid a major financial crisis.Mr Berlusconi quit as Prime Minister in 2011 amid a major financial crisis.
At the time, markets had lost confidence in his ability to push through spending cuts and difficult labour market reforms deemed necessary to revive the country's economy. At the time, markets had lost confidence in his ability to push through spending cuts and difficult labour market reforms deemed necessary to revive Italy's economy.
Italy's government was faced with spiralling borrowing costs in the bond markets, while the country's banks were forced to turn to the European Central Bank for emergency loans. The Rome government was faced with spiralling borrowing costs in the bond markets, while the country's banks were forced to turn to the European Central Bank for emergency loans.
The elections follow the end of the caretaker premiership of technocratic Prime Minister Mario Monti, who took over from Mr Berlusconi and pushed through a plethora of economic reforms, regaining the markets' trust. The elections follow the end of the caretaker premiership of technocratic Prime Minister Mario Monti, who took over from Mr Berlusconi and pushed through a plethora of unpopular economic reforms, that helped regain the markets' trust.
Deadlock concernsDeadlock concerns
The Milan bourse had been up 4% for the day in mid-afternoon trading, led by Italy's major banks, which were up well over 7%, as exit polls raised hopes that a centre-left government under Pier-Luigi Bersani would be able to form a majority in the lower house of parliament. The Milan bourse, which had been up 4% for the day in mid-afternoon trading, gave up its gains as the early Senate results came through, ending the day only 0.7% higher.
Across the rest of Europe, bank shares gained 3%-4% on the news. 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.
href="http://www.bloomberg.com/quote/GBTPGR10:IND" >Italy's implied cost of borrowing for 10 years on the bond markets fell to 4.17% from 4.33% at the end of Friday, as the perceived riskiness of lending to the government fell. The negative tone continued into US trading hours, with the Dow Jones falling steadily from mid-morning, to finish the day 1.6% lower.
Meanwhile, the euro gained a cent against the dollar to $1.33. US banks were also badly hit by concern that a failure by the new Italian government to get to grips with the country's heavy debt burden could lead to renewed stress in the international banking system.
However, early data from the Senate election count then emerged in the late afternoon suggesting that the centre-right Mr Berlusconi would gain control of the upper house, raising concerns of legislative deadlock. Morgan Stanley fell 6.6%, Citigroup 3.8%, Bank of America 3.6% and JP Morgan 2.5%.
Markets rapidly gave up all of their gains for the day, with the stock market bouncing slightly just before the close, and Milan's FTSE MIB index ended the day only 0.7% higher. On the bond markets, href="http://www.bloomberg.com/quote/GBTPGR10:IND" >Italy's cost of borrowing ended Monday fractionally 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 government's 10-year borrowing cost ended Monday fractionally higher at 4.49%, while the euro was back at $1.318 against the dollar, as hopes for greater political stability evaporated. 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.