ROME — Italian bond and stock prices fell on Monday after a weekend of political turmoil in Italy gave rise to fears that the country was headed for renewed instability.
Shares of Italian banks, which are big holders of their government’s bonds, were among the hardest hit.
The action came on the first day of trading after Prime Minister Mario Monti said over the weekend that he would soon step down after Silvio Berlusconi’s party pulled its support from the government. Mr. Berlusconi, Mr. Monti’s predecessor, has said that he will run again for prime minister.
Mr. Berlusconi, a four-time prime minister, left office a year ago as markets pushed Italy to the brink of financial collapse. Mr. Monti, an economist who was appointed as his temporary successor, has restored Italy’s credibility with investors, who have given the country a break on its borrowing costs. But those gains have come at the cost of painful austerity measures that have given Mr. Berlusconi an opening to attack.
The Milan benchmark index, MIB, fell more than 2 percent on Monday. Italian banks, which as big holders of government bonds remain sensitive to declines in the prices of those bonds, were among the big losers. Intesa Sanpaolo, the most active stock, fell 5.7 percent, as did Unicredit.
Mr. Monti, who joined other leaders in Oslo on Monday to receive the Nobel Peace Prize awarded to the European Union, said at a news conference that the market reactions “need not be dramatized.”
“I am confident that the Italian elections,” he said, will result in a government “that will be responsible and oriented toward the E.U. and this will be in line with efforts the Italian government has made so far.”
The decline in bond prices sent their yields, or interest rates, higher — an indicator of the Italian government’s borrowing costs. The spread between interest rates on Italian 10-year sovereign bonds and equivalent German securities, the European benchmark for safety, grew to 3.5 percentage points on Monday. That was up from 3.25 points late Friday, suggesting that investors were growing more wary of holding Italian debt.
The Italian 10-year bonds, for which the yield spiked to a dangerous high above 7 percent this year, ended Monday’s trading at 4.8 percent, up 29 basis points. A basis point is one-hundredth of a percent.
Bonds of Spain, which is the other big economy of concern in the euro zone, also came under renewed pressure on Monday, following Mr. Monti’s announcement.
A barometer of euro zone blue-chip stocks, the Euro Stoxx 50 index, fell 0.2 percent.
A dismal economic report on Monday served as a reminder that despite Mr. Monti’s success with investors, the real economy continues to suffer. Italian industrial production fell a seasonally adjusted 1.1 percent in October from September, and by 6.2 percent from a year earlier, Istat, the national statistics agency, reported from Rome.
Some analysts said they believed that Mr. Berlusconi’s re-emergence as a political leader had as much to do with spooking investors as Mr. Monti’s unexpected decision to resign. Nicholas Spiro, managing director of Spiro Sovereign Strategy, a research firm, wrote Monday in a note that Mr. Berlusconi remained “the bogeyman of investors,” who “epitomizes the dysfunctional nature of Italian politics.”
Angela Merkel, the German chancellor, was to meet on Monday with Mr. Monti on the sidelines of the Nobel ceremony, said Georg Streiter, a spokesman for the chancellor.
Ms. Merkel pushed to have Mr. Monti succeed Mr. Berlusconi. But she ended up facing Mr. Monti’s own economic reform ideas, which focused more on growth and job creation than the austere fiscal discipline championed by Ms. Merkel.
As a rule, the German government does not comment on its partners’ domestic politics, but Foreign Minister Guido Westerwelle warned that an attempt to scale back Italy’s reform push could result in further destabilization in the euro zone.
“Italy cannot remain stagnant on two-thirds of its reform process,” Mr. Westerwelle said through a spokesman. “This would throw not only Italy, but the rest of Europe, into turbulence.”
On Monday, the interest rate spread of Spanish 10-year bonds over equivalent German bonds rose to 4.27 percentage points from 4.16 points on Friday. The yield on the benchmark Spanish 10-year rose 10 basis points to 5.5 percent; it reached 7.1 percent in July amid concerns that Spain would be forced into a full bailout after having to negotiate a €100 billion, or $129 billion, rescue package for its banks in June.
Luis de Guindos, the Spanish economy minister, warned that Italy’s political turmoil would have an impact on his country.
“When doubts emerge over the stability of a neighboring country like Italy, which is also seen as vulnerable, there’s an immediate contagion for us,” he said Monday morning on Spanish national radio.
Asked whether Spain would itself seek further European rescue funding, he instead said, “The help that Spain needs is that the doubts over the future of the euro be removed.”
Speaking before the Nobel ceremony on Monday, the European Commission president, José Manuel Barroso, said Italy must “continue on the road of structural reforms.” The elections, Mr. Barroso said on Sky News, “must not be used to postpone reforms.”
David Jolly reported from Paris. Raphael Minder contributed reporting from Madrid and Melissa Eddy from Berlin.
Euro Watch: Italian Political Turmoil Weighs on Markets
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Euro Watch: Italian Political Turmoil Weighs on Markets
