European Markets, Italian Bonds Down

Merkel's party loses regional elections

Worries over the European debt crisis drove markets and Italy’s bonds lower on Monday, with gold and the dollar gaining over the euro. Angela Merkel’s party lost elections in Germany over the weekend as well, showing opposition to euro bailouts the German chancellor has advocated.

Bloomberg reported that the cost of government and bank default insurance also rose as fears that the euro zone’s debt woes will spread drove investors to seek safety. European bank stocks suffered as well; Deutsche Bank, Credit Suisse Group, Barclays, Societe Generale and Royal Bank of Scotland Group dropped at least 7%, while HSBC Holdings fell 2.6%.

Italian 10-year bonds saw yields climb 28 basis points to their highest level since Aug. 5, and yields on Greek two-year bonds rose 2.65 percentage points to come in at 49.85%.

Italy is also looking at the threat of a general strike on Tuesday, when Prime Minister Silvio Berlusconi is to seek Parliament’s approval for an austerity plan totaling 45.5 billion euros ($65 billion).

Asian markets were not exempt fromt he downward movement. South Korea’s Kospi Index dropped 4.4%, more than any other bourse, and the Shanghai Composite Index lost 2%. Gold was up 0.5% at $1,892.35 per ounce, and the euro dropped to a three-week low.

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