Italy gridlock shakes up global markets

Italian bond yields can go

Italian bond yields can go"quite a big higher" says Nutmeg CIO Shaun Port

Wall Street is also poised for a lower opening with Dow futures and the broader S&P 500 futures down 0.7 percent.

Major exporters like technology and industrial companies and big drug and medical device makers also skidded. Many view the 10-year as a proxy for longer-term growth and inflation expectations, and a thus signal for where the USA economy is headed. They bought German and British government bonds instead, which are seen as more stable. Investors had feared that a repeat vote could become a proxy referendum on Italy's euro membership.

The European Central Bank does not see a need to react for now, however, because key financial indicators have yet to show signs of acute stress.

ANALYST TAKE: "This is an unsustainable situation that implies fresh elections, and from a market point of view an increase in market volatility and possible financial crisis", said Neil MacKinnon, global macro strategist at VTB Capital.

Italy is always just a few steps away from the "very serious risk of losing the irreplaceable asset of trust", Bank of Italy Governor Ignazio Visco said.

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"At these levels, I think the dollar is almost priced to perfection and we think the euro should see a rebound from later this year", said Paul Baird, head of fixed income at Newton Asset Management, a subsidiary of BNY Mellon which manages $49.8 billion in assets globally. The dollar rose to 108.24 yen from 109.37 yen. The two-year yield more than doubled, from under 1 percent to 2.2 percent.

The Dow Jones industrial average lost 391 points, or 1.6 percent, to 24,361. It was down as much as 505 earlier. By mid-afternoon Asia time it was at 2.81 percent. Earlier it fell to $1.1510, its lowest level since last July before recovering to trade 0.5 percent down on the day at $1.1565. Most Southeast Asian markets were closed for holidays. That ended their attempt to establish a government after inconclusive elections in March.

Repos are a safer form of credit because the lender gets to keep the collateral - in Europe, typically a high-rated government bond such as Germany's - if the borrower can't pay back.

Britain's FTSE 100 sank 1.2 percent and the French CAC 40 slumped 1.2 percent. Bank of America gave up 1.8 percent and Oracle lost 1.2 percent.

UniCredit SpA Chief Executive Officer Jean Pierre Mustier said the decline in Italian bank stocks was driven by fears rather than reality based on the performance of the Italian economy or the lenders themselves. "You've going to have less investment, you're going to have a decline in consumer spending, you've going to have, on the margin, less consumer activity affecting growth".

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"Italy is now facing elections in the midst of political chaos", Soros said at a speech in Paris, warning that failed economic and immigration policies mean that "it is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality".

In Spain, that country's parliament will hold a vote of no confidence in Prime Minister Mariano Rajoy after graft convictions of businesspeople and officials tied to his conservative Popular Party. The Spanish IBEX 35 sank 2.5 percent. The yield on the 30-year Treasury bond, meanwhile, was down at 3.006 percent.

US crude futures retreated 0.2 percent to $66.58 per barrel, extending losses into a sixth consecutive sessions. Oil prices have slumped in the last week following reports that OPEC countries and Russian Federation could start pumping more oil soon. Brent crude, used to price worldwide oils, rose 0.6 percent to $75.80 per barrel in London. Natural gas dropped 2.2 percent to $2.88 per 1,000 cubic feet. The Nasdaq composite fell 37 points, or 0.5 percent, to 7,398.

Shares in Italian banks Banco BPM, BPER, UBI and Intesa Sanpaolo were among the biggest risers on the STOXX, up between 3.3 percent to 8.5 percent after sustaining heavy losses in the previous month. Hong Kong's Hang Seng index plunged 1 percent.

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