European stocks finished sharply lower Tuesday, led by a selloff in Italian equities. Investors were assessing the prospect of new elections in Italy, which could effectively serve as a referendum on the euro.
Meanwhile, political uncertainty in Spain hit Madrid-traded stocks, as Prime Minister Mariano Rajoy’s struggle to stay in power raised fears of new elections.
What markets are doing
Italy’s FTSE MIB index I945, -2.65%[1] tumbled 2.7% to end at 21,350.88. Investors also fled Italian debt, with the 2-year bond yield TMBMKIT-02Y, +157.06%[2] recently surging to 2.42%, as prices sank. Bond prices move in the opposite direction of yields.
See: In topsy-turvy Italian markets, sovereign debt seen as riskier than corporate bonds[3]
In Spain, the IBEX-35 index IBEX, -2.49%[4] gave up 2.5% to close at 9,521.30, as traders fretted about the future of Rajoy’s government.
France’s CAC 40 PX1, -1.29%[5] fell 1.3% to end at 5,438.06, and Germany’s DAX 30 index DAX, -1.53%[6] sank 1.5% to 12,666.51. In London, the FTSE 100 UKX, -1.26%[7] moved down 1.3% to finish at 7,632.64.
Those broad losses led to a 1.4% fall for the Stoxx Europe 600 Index SXXP, -1.37%[8] to 384.47. That adds to a 0.3% decline on Monday[9], when Italian stocks also suffered.
The euro EURUSD, -0.6366%[10] recently traded at $1.1547 from $1.1625 on Monday, moving below $1.16 for the first time since November.
What’s driving markets
Worries grew that Italy will be forced to hold a new general election. The country’s president, Sergio Mattarella, on Monday blocked two antiestablishment parties from taking power[11] by...