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Global stocks, euro pare gains on Italy vote

Nov 08 2011 18:33 Reuters

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New York - Global shares and the euro pared most gains on Tuesday after Italy’s embattled leader, Silvio Berlusconi, won a budget vote in parliament even as he faces the possibility of being forced to resign.

The outcome of the vote indicated Berlusconi lost his majority in Parliament, and the opposition leader called for him to quit.

Stocks and the euro pulled back on the news, suggesting investors will have to await further developments that could increase volatility and potentially drive money into safe-haven assets like gold and U.S. Treasuries.

The outcome may escalate the political crisis in the euro zone’s third-largest economy, as it is unclear whether Berlusconi will give up power.
“Basically this is the worst possible combination of events -- he wins the vote but doesn’t get the majority,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “This is euro negative because it increases near-term uncertainty ... it keeps uncertainty hanging over the market.”

The euro edged up less than 0.1 percent versus the U.S. dollar, after gaining close to 0.4 percent before the vote.
Berlusconi’s exit could ease the passage of unpopular austerity measures needed to reduce debt and lower Italian government bond yields, which hit a 14-year high on Tuesday.

Focus has shifted in the past days from Greece’s weak economy and finances to the swelling Italian deficit. With borrowing costs soaring and 1.9 trillion euros in public debt, the country, as opposed to Greece, is too large to bail out.
Italian 10-year debt yields ticked up to 6.71 percent after earlier touching a 14-year high of 6.74 percent.

In morning stock trading in New York, the Dow Jones industrial average was down 19.98 points, or 0.17 percent, at 12,048.41. The Standard & Poor’s 500 Index was up 0.07 point, or 0.01 percent, at 1,261.19. The Nasdaq Composite Index was up 3.44 points, or 0.13 percent, at 2,698.69.

The benchmark 10-year U.S. Treasury note was up 1/32, yielding 2.051 percent.
The FTSEurofirst gained 1.2 percent and the MSCI world equity index was up 0.3 percent.
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