Italian political crisis causes jitters in financial markets

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Italy shakes the financial markets ...

That could have major implications for the European financial system and its economy.

Italy held a successful bond auction on Wednesday in the midst of its deepening political crisis.

"I think it would be better if they were to work things out within the eurozone without making significant changes there and certainly the Italians have to opportunity to do that", a senior US Treasury official told reporters in a briefing before the ministerial meeting.

New worries about the euro sent the currency to its lowest level against the dollar in almost a year.

World stocks gained 0.38 percent, and European shares made tentative gains after falling nearly 4 percent in the past five days. Eastern time. The Dow Jones industrial average lost 470 points, or 1.9 percent, to 24,282. The Russell 2000 index fell far less than the Dow average, giving up 3.28 points, or 0.2 percent, to 1,623.65.

"The direct connection between the Italian government and the S&P 500 is tenuous, but it indirectly reminds people of geopolitical uncertainty", said Ed Keon, chief investment strategist at QMA in Newark, New Jersey. Morgan Stanley shares dropped 5.8 percent, the second-largest percentage decline on the index. The German bund benchmark last fell 19/32 in price to yield 0.337 percent.

"It's evolving into not the greatest environment for bank stocks", said Tim Ghriskey, chief investment strategist at Inverness Counsel in NY.

There has been a sell-off of Italian bonds, a fall in bank shares and the euro has hit multi-month lows.

ENERGY: U.S. crude oil climbed 43 cents to $67.16 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price global oils, added 71 cent to $76.20 a barrel in London.

Oil struggled under pressure from expectations that Saudi Arabia and Russian Federation would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as USA output has surged in recent years. Heating oil shed 1.1 percent to $2.19 a gallon.

The July crude contract was up US$1.41 to US$68.14 per barrel and the July natural gas contract was down one cent to US$2.89 per mmBTU. Silver lost 1 percent to $16.37 an ounce. Hong Kong's Hang Seng index plunged 1 percent.

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