Italian Pain Is European Exporters' Gain as Turmoil Sinks Euro

GETTY•EU PARLIAMENTItaly news Marco Zanni MEP claims euro's days are'finished amid Italy's deep political crisis

A deepening political and constitutional crisis in Italy, the euro zone's third biggest economy, fueled a sharp rise in the country's short-term borrowing costs on Tuesday and renewed selling in the euro and stocks. Italy's benchmark FTSE MIB index was the region's worst performer, down 2.8 percent at 21,297. In Europe, the German DAX lost 1.5 percent and Britain's FTSE 100 and the French CAC 40 both sank 1.3 percent. Those companies depend on strong sales outside the U.S.

Italy, one of the European Union's biggest economies, has been plunged into crisis after President Sergio Mattarella at the weekend vetoed the new government's nomination of a fierce eurosceptic as economy minister.

New worries about the euro sent the currency to its lowest level against the dollar in almost a year.

Elsewhere shares in Deutsche Bank recovered some of the previous session's heavy losses, climbing 2.8 percent higher following Thursday's drop of more than 7 percent in the after a report that the U.S. Federal Reserve a year ago designated the bank's U.S. operations to be in "troubled condition". That would force Italy to new elections in the fall, with Cottarelli heading an interim, caretaker government, raising fears that any upcoming election could in effect be a referendum on the country's continued use of the euro currency. The dollar rose to 108.24 yen from 109.37 yen.

US crude oil fell 1.7 percent to $66.73 a barrel in NY. The Nasdaq composite fell 6 points, or 0.1 percent, to 7,426. A capitalisation-weighted index of euro area banks fell as much as 5.2% to its lowest since December 2016, while Deutsche Bank AG dropped by 3.3% to the lowest since September 2016.

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The yield on the 10-year Treasury is one of the most closely watched financial measures in the world, along with the price of oil, gold and the USA dollar. South Korea's KOSPI and Australia's S&P/ASX 200 slipped 2.0 percent and 0.5 percent, respectively.

USA markets were closed Monday for the Memorial Day holiday.

Elsewhere Spanish equities rose 1.4 percent, shrugging off any jitters as a no confidence motion in Prime Minister Mariano Rajoy was set to be voted. Italian assets sank across the board Tuesday, with the risk premium on 10-year bonds over German benchmarks rising to the biggest in nearly five years. The Russell 2000 index fell far less than the Dow, giving up 0.2 percent to 1,623.65.

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.

Asian markets were mostly lower, with traders keeping an eye on oil prices, which have tanked since Saudi Arabia and Russian Federation indicated they could lift output, having abided by a self-imposed cap for two years. Brent crude, used to price global oils, dropped 40 cents to $77.16 per barrel. Hong Kong's Hang Seng index clawed back losses to gain 0.1 percent, ending at 30,492.91.

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