Spread between Italian, German bonds widens to 295
Shows rising concerns over Italy's economic, political future06 February, 18:56
The steady growth in the spread, also reflected in the jump to a 4.58% rate on Italy's 10-year bond, was consistent with a continued slide on Milan's Stock Exchange, which lost 0.65% of its value in trading to close the day at 16,602 points.
Analysts blame the turmoil on the sudden rise in popularity among voters for ex-premier Silvio Berlusconi in the campaign leading to Italy's national vote February 24 and 25.
The prospect of another Berlusconi government - with his pledges to undo many of the fiscal austerity reforms put in place by the technocratic government of Premier Mario Monti - has raised the spectre of Italian financial chaos and spooked markets across Europe. Berlusconi also plans to refund a tax on primary residences - the much-maligned IMU imposed by Monti, who is also seeking election.
Financial markets have applauded Monti's reforms as helping the country's economy through crisis while reducing interest rates and cutting spending.
Berlusconi argues that the rising spread is due to a derivatives scandal at Italy's third-largest lender, Monte dei Paschi di Siena (MPS).
Bank board members meeting Wednesday were scheduled to update shareholders on total losses at the world's oldest bank, stemming from a series of high-risk and failed derivatives trades and other structured financial deals.
The extent of those losses had previously been hidden from investors and were recently estimated at about 720 million euros.
There have also been reports of bribery and corruption by bank officials regarding, among other things, the costly nine-billion-euro acquisition of rival Antonveneta in 2008.
The scandal comes amidst a national election campaign and could damage the prospects for the left-leaning Democratic Party, which has longstanding ties to MPS and its lucrative foundation.
But politicians across party lines all have some connection to the bank, which have requested and received government assistance in recent years.
In Frankfurt, the DAX lost 1.09% to reach 7,581.18 points, while Paris's CAC 40 fell by 1.40% to 3,642.90 points, and Spain's IBEX 35 ended trading 0.46% lower at 8,056.20 points.
Only London's FTSE 100 showed any momentum, rising 0.20% to close at 6,295.34 points.