European Markets Reel Over Rows In Italy, Spain

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

Having already slumped on Monday, Italy's FTSE MIB stocks index shed more than 3 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 eurosceptic 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.

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.

Adding to the pressure on euro 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. (AFP)