Markets drop as Italian bond yields hit new records

Markets moved lower on Monday as fears over Greece and Italy remained despite the imminent formation of a Greek coalition government.

The FTSE 100 was down 1.7% at 5,434 in early trading as Greek prime minister George Papandreou looked set to stand down in the wake of the coalition agreement.

Germany's Dax was down 1.7% at 5,867 while France's Cac 40 also fell 1.7% to 3,070 as Italy became the focal point of attention for investors.

Italian 10-year bond yields moved 20 basis points higher to a record 6.56%, with the spread over German bunds also moving to a fresh euro-era record.

The Nikkei 225 closed down 0.4% at 8,767 overnight in Asia, with Hong Kong's Hang Seng trading down 0.9% at 19,667 and the MSCI Asia Pacific ex Japan down 0.4%.

Italian yields had moved above 6.4% last Friday, a day when the G20 summit produced no concrete commitment of assistance for the eurozone's attempts to expand its bailout funds.

EU finance ministers will meet late today in Brussels as Italian prime minister Silvio Berlusconi attempts to face off the latest domestic political rebellion over his handling of the nation's fiscal reform.

In Greece, Papandreou and opposition leader Antonis Samaras agreed on the coalition government, which will approve the eurozone's latest bailout plan, on Sunday. But fears remain over the long-term health of Greece, Italy and the eurozone itself.