Italy: Bund-BTP spread hits highest level since January

Milan, 23 July (AKI) - The spread between 10-year Italian bonds and the safer German Bund benchmark rose to 521 points on Monday - the highest level since January. Italian BTP bond yields hit a dangerously high 6.37 percent amid concerns about a spillover of the debt crisis in Spain and Greece and domestic political uncertainty.

Shares in Italy's main banks lost ground: Italy's oldest bank Monti dei Paschi di Siena fell 2.67 percent in early trading while shares in the country's largest bank Unicredit were down 2.63 percent and Intesa San Paolo dropped 2.29 percent.

The Milan bourse's Ftse Mib index plummeted 4.21 percent with trading of many shares suspended and European stock markets opened sharply lower amid concerns over the ability of Spain's regions to pay their debts.

Spain's main stock index dropped 5.8 percent and Spanish 10-year government bond yield eached a record euro-era high of 7.4 percent.

The euro dropped below the psychological benchmark of 1.21 dollars as markets opened, for the first time since June 2010.

On Sunday in Italy, there was fresh uncertainty about one of the big questions hanging over the 2013 election, the possible return of 74-year-old media billionaire Silvio Berlusconi as candidate of the centre-right.

The office of Italy's technocrat prime minister Mario Monti, who was appointed last November to avert Italy's spiralling debt crisis denied an unsourced report in the Corriere della Sera newspaper that he was considering an early election in the autumn.

Italy's main political parties also denied they would withdraw their support for Monti's government in parliament.

Ratings agency Moody's when it cut Italy's credit rating by two notches earlier in July, citing political uncertainty as one of the main reasons. Italian treasury officials have dismissed fears that Italy may face difficulty on the market, where it still needs to raise another 170 billion euros by the end of the year.