European stocks cautious after Monti says will resign

European stock markets mostly fell Monday, with Milan shares plunging after Italian Prime Minister Mario Monti announced his intention to resign, in the latest twist to the eurozone debt crisis.

Milan's FTSE Mib benchmark index of top companies slumped 2.87 percent to 15,249.29 points in afternoon deals, but had rebounded somewhat from huge losses in early trading while Italian government borrowing costs spiked on the back of the political uncertainty.

Madrid's IBEX 35 index dived 1.27 percent to 7,749 points, hit also by rising bond yields in debt-laden Spain.

Elsewhere trading was cautious with London's FTSE 100 unchanged at 5,907.78 points, Frankfurt's DAX 30 slipping 0.19 percent to 7,505.77 points and the Paris CAC 40 virtually flat at 3,604.48 points.

Dealers on Wall Street also proceeded cautiously in the first minutes of trade on Monday with the Dow Jones Induatrial Average up 0.06 percent, the tech-heavy Nasdaq index slipping 0.02 percent and the broader S&P 500 easing 0.05 percent.

"For all the drama that has been surrounding Spain and Greece recently, it's Italy now everyone is focusing on today. The unsettling news out of the eurozone's third biggest economy is weighing on sentiment," said Gekko Markets analyst Anita Paluch.

In foreign exchange activity, the European single currency held steady at $1.2933, up slightly from $1.2928 late in New York on Friday. Gold prices rose to $1,708.50 an ounce on the London Bullion Market, from $1,701.50.

Meanwhile, the cost to Italy of borrowing for 10 years rose sharply on political uncertainty after Silvio Berlusconi revealed that he would challenge Monti in forthcoming elections.

In reaction to the turmoil, the 10-year yield on the market for existing government bonds jumped to 4.777 percent on Monday, from 4.525 percent late on Friday.

"Whether it's Monti's early departure or the fact that Berlusconi is going to run for office again that's proving the most unsettling for markets is clearly open for debate," said Mike McCudden, head of derivatives at brokerage Interactive Investor.

"However, many consider Italy as being on the cusp of plunging into a financial markets abyss.

Monti, caretaker prime minister since Berlusconi left office last year under a cloud of controversy, is credited with enacting deep economic reforms which had brought down sharply Italian bond yields.

"Italian elections -- possibly as early as February -- could weigh on European assets for the medium-term. The market had expected elections in April," added Kathleen Brooks, research director at trading website Forex.com.

"Monti will resign, so the market needs to weigh up the prospect of a new leader who may not want to stick to Monti's economic reform programme," she told AFP.

Natixis strategist Cyril Regnat however said the sharp rise in Italian yields "seems a bit excessive" and that real indicator of investor sentiment will come Wednesday when the Italian treasury auctions medium term debt.

In earlier deals, Asian equities mostly rose on Monday as dealers cheered an improvement in the US unemployment rate and another batch of manufacturing figures indicating China's economy is emerging from its slumber.

burs-arp/wai

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