Stocks dive amid Italy uncertainty

Updated: 
An electronic stock board in TokyoAsian stock markets have fallen as concerns simmered about Italy's ability to ever grow robustly enough to repay its massive debts.

Benchmark crude hovered above 98 US dollars per barrel while the dollar rose against the euro but was steady against the yen.

Japan's Nikkei 225 index lost 0.7% to 8,540.13. South Korea's Kospi index dropped 1% to 1,883.94 and Hong Kong's Hang Seng fell 1.1% to 19,295.53. Benchmarks in Australia, China, Taiwan and Singapore also retreated.

Markets were buoyed the past few days as Greece and Italy moved to form new governments and embarked on other steps to get their debt troubles under control.

However a worrisome sign emerged when the Italian government sold five-year bonds at 6.29% interest - the highest interest rate since 1997. Italy paid a much lower rate of 5.32% at a similar auction only last month.

The increase is a sign that banks and other bond buyers remain concerned about Italy's ability to pay its debts at a time when the country's economy is stagnant.

Italy's solvency is crucial to the future of the euro currency shared by 17 nations because the country - with 1.9 trillion euro in debt - is too expensive to rescue from a default.

Martin Hennecke, associate director of the financial advisers Tyche Group in Hong Kong, said the results of Italy's bond sale showed that the worst is not over.

"That renewed the concern of whether or not Italy will be able to keep funding itself and prevent a similar crisis in Italy that we've seen in Greece before," Mr Hennecke said. "If that was going to happen to Italy, that could easily sink France as well by extension. French banks have huge exposure to Italy."
© 2011 Press Association

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