European bourses cut losses amid eurozone uncertainty

Nov 7, 2011, 17:07 GMT

Frankfurt - European shares were ending the trading day in negative territory Monday amid renewed uncertainty about the two nations currently at the centre of the eurozone debt crisis - Greece and Italy.

The blue-chip EuroStoxx 50 index finished the day down 0.7 per cent at 2275 after a volatile trading session amid speculation that Italian Prime Minister Silvio Berlusconi was considering standing down.

Following a 2.5-per-cent slump in opening trading, the index edged back into positive territory at midday as market hopes rose that Berlusconi planned to resign before a key parliamentary vote was held on Tuesday.

But a denial from Berlusconi on his Facebook page resulted in European shares paring back losses.

Stocks in Milan followed a similar course with talk that Berlusconi planned to step down resulting in the main Italian bourse surging by 3 per cent in early trading.

Apart from the parliamentary vote in Rome that could decide Berlusconi's political future, investors were also waiting for details of the membership of Greece's new caretaker government.

This followed an agreement reached on Sunday by Greece's main political parties to form an interim government.

By late afternoon trading, the euro had lost 0.5 per cent, pushing the common currency down to 1.3744 dollars. In the meantime, the price of gold also rallied.

Investors believe the Italian premier's resignation would help to ensure that the eurozone's third biggest economy presses ahead with a rigorous reform program to help knock its state finances into shape.

Underlying the market pressure on Berlusconi, the yield on 10-year government bonds rose to a new record of 6.568 per cent Monday.

Borrowing costs of this scale could mean that Italy might be at some point forced to turn to the euro bailout fund for a financial lifeline to help it meet its commitments.

At 120 per cent of gross domestic product, Italy has the second highest debt in the 17-member eurozone after Greece.

A more cautious mood prevailed on share markets in other parts of the eurozone. While stocks in Frankfurt ended the day down 0.6 per cent, Paris's CAC-40 index was off 0.46 per cent.

As the trading got underway on Wall Street, shares in New York drifted down 0.3 per cent under the key 12,000-point mark.

In the meantime, Greek Prime Minister George Papandreou is set to become his country's most prominent victim of the debt crisis gripping the nation. Greece and Italy have the highest debts levels in the eurozone.

Papandreou's move to step aside from the prime ministership has paved the way for the creation of a new caretaker government, which is to take charge of implementing the nation's 130-billon-euro (179.7 billion dollars) bailout package.

Shares in Athens were up 1.39 per cent in late trading on hopes that the agreement to form the interim government would end the nation's political turmoil.