European Stocks, Euro Rocked by Italian Turmoil

European stock markets and the euro extended losses Tuesday as political uncertainty in Italy stoked fresh fears about the eurozone.

Having already slumped Monday, Italy's FTSE MIB stocks index shed more than three percent in value, a move mirrored by Madrid's IBEX 35 on Spain's own political crisis.

"The fear of another election and political uncertainty in Italy is driving significant losses throughout Europe," said Joshua Mahony, market analyst at IG traders.

"It comes as no surprise that we are seeing Italian markets suffer heavily, with the FTSE MIB hitting a 10-month low, and the two-year (Italian) bond yield topping two percent for the first time since 2013."

Italy's 10-year bond yields meanwhile were over 300 points higher than Germany's, reflecting investor worry over the prospect of a fresh eurozone crisis.

The euro meanwhile struck the lowest level against the dollar since last July.

Italy, the eurozone's third biggest economy after Germany and France, has been plunged into crisis with President Sergio Mattarella at the weekend vetoing the nomination of a fierce euroskeptic as economy minister.

The move led the prime minister-designate to step down, scuppering the bid by the anti-establishment Five Star Movement and the far-right League to form a government.

- 'Heightened uncertainty' -

Mattarella then named Carlo Cottarelli, a pro-austerity economist formerly with the International Monetary Fund, to lead a technocrat government, with another election likely in the autumn.

The chaotic developments have spooked investors, who fear another election could see a better result for the essentially anti-EU parties.

"We may now be in for an extended period of heightened uncertainty ahead of fresh elections," Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, said in a note to clients.

Adding to the selling pressure was a brewing crisis in Spain, where Prime Minister Mariano Rajoy faces a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.

Asian stock markets were mostly lower, with traders keeping an eye also on oil prices, which have tanked since Saudi Arabia and Russia indicated they could raise output after abiding by a self-imposed cap for two years. 

The comments come as supply worries increase, with major producer Venezuela hit by economic uncertainty, Iran facing painful export sanctions and demand seen picking up.

Brent crude manage to rebound slightly on Tuesday, while WTI slumped once more.

- Key figures around 0945 GMT -

Milan - FTSE MIB: DOWN 3.4 percent at 21,195.49 points

Madrid - IBEX 35: DOWN 2.6 percent at 9,507

London - FTSE 100: DOWN 1.4 percent at 7,622.95 

Paris - CAC 40: DOWN 1.8 percent at 5,407.96 

Frankfurt - DAX 30: DOWN 1.8 percent at 12,634.74 

EURO STOXX 50: DOWN 2.0 percent at 3,410.07

Tokyo - Nikkei 225: DOWN 0.6 percent at 22,358.43 (close)

Hong Kong - Hang Seng: DOWN 1.0 percent at 30,484.58 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,120.46 (close)

New York - Dow: Closed Monday for public holiday

Euro/dollar: DOWN at $1.1514 from $1.1624 

Pound/dollar: DOWN at $1.3235 from $1.3304

Dollar/yen: DOWN at 108.65 yen from 109.35 yen 

Oil - Brent Crude: UP 20 cents at $75.50 per barrel

Oil - West Texas Intermediate: DOWN $1.40 at $66.52