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European stocks ride Italian election rollercoaster

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(Globalpost/GlobalPost)

European stock markets rode an Italian election rollercoaster Monday, rising as exit polls initially tipped a centre-left victory but then dipping as it emerged a coalition may be needed.

Nevertheless, London's FTSE 100 index of leading companies ended the day up 0.31 percent to 6,355.37 points, in Paris the CAC 40 climbed 0.41 percent to 3,721.33 points, while Frankfurt's DAX 30 jumped 1.45 percent to 7,773.19 points,

Italy's FTSE-Mib jumped by nearly 4 percent after the first exit polls showed the centre-left led by Pier Luigi Bersani had a large lead over Silvio Berlusconi's party.

It then swung sharply down to a loss of 0.3 percent after polls showed the centre-right ahead in the upper house Senate, meaning a coalition would be necessary, only to finish the day up 0.73 percent to 16,352 points.

"After initially showing significant gains across all of Europe, the news that the comeback king Berlusconi could be proving to be more Teflon coated than normal sent markets sharply into reverse gear, said CMC Markets analyst Michael Hewson.

"It’s going to be a long night!" he added.

Democratic Party leader Bersani has said he is the best man to help promote a growth agenda for Europe and "turn the page" after years of Silvio Berlusconi.

Bersani and his leftist coalition were shown ahead in exit polls with between 34.5 and 37 percent, beating the 29 to 31 percent for scandal-tainted former premier Berlusconi's group.

But the exit polls also showed the right and left were neck and neck in the battleground Lombardy region, which could determine who ends up controlling the upper house of parliament.

Billionaire and three-time prime minister Berlusconi, 76, had waged a populist campaign, blaming the Germans for Italy's economic woes and promising to refund an unpopular property tax to Italians.

Bersani had meanwhile pledged to continue with budget discipline if he won the election, to the delight of financial markets.

"Insofar as Bersani has pledged to continue with the reforms laid out by (outgoing premier Mario) Monti, markets are viewing a Bersani-led government as the best prospect. A more optimal prospect would be a coalition with Monti appointed finance minister," said Rabobank analyst Jane Foley.

The rate of return for investors on 10-year Italian government bond yields fell to 4.389 percent from 4.446 percent on Friday.

Markets, however, took Moody's stripping Britain of its triple-A debt rating in their stride.

Moody's said government debt was still mounting and growth was too weak to reverse the trend before 2016 -- heaping more pressure on the pound.

The pound hit $1.5073 in Asian trading hours -- the lowest level in 2.5 years. Britain's currency had reached similar lows last week on anticipation of a downgrade.

After hitting a fresh low-point on Monday, the pound recovered in trading in London to reach $1.5112, compared with $1.5162 on Friday.

"The news is by no means unexpected, and sterling naturally has weakened... but not by as much as many would expect and that's purely because we've already seen the currency plummet in the run up to the announcement," said Angus Campbell, head of market analysis at Capital Spreads traders.

"Traders are likely to shrug off the downgrade as it has been priced-in for some time and more importantly, does not fundamentally change the UK's overall investment value," added Ishaq Siddiqi, market strategist at ETX Capital trading group.

The yield on British 10-year debt bonds initially rose, but by end of day had dropped to 2.077 percent from 2.109 percent on Friday before the downgrade.

The euro had broken $1.33 on the prospects of a clear win by the centre-left in Italy, but then fell back to $1.3197. That was still up marginally from $1.3189 on Friday.

Gold prices increased to $1,586.25 an ounce on the London Bullion Market from $1,576.50 on Friday.

-- BP shares down ahead of US trial --

In corporate news on Monday, BP shares climbed 1.6 percent to 451.15 pence, awaiting the start of a complex US trial to determine how much more the British energy giant should pay for the devastating 2010 Gulf of Mexico oil spill.

According to the Wall Street Journal, US authorities plan to propose a $16-billion settlement for civil claims.

BP has already resolved thousands of lawsuits linked to the deadly disaster out of court, costing the firm billions of dollars.

Shares in Pearson fell by 3.7 percent to 1,171.00 pence after the British publisher and owner of the Financial Times newspaper said annual net profit plunged by 66 percent in 2012 as its print business came under pressure from fast-growing digital media.

Profits after tax dived to £326 million ($493 million, 373 million euros) last year compared with net earnings of £957 million in 2011, while the group said it expected a tough 12 months ahead.

Asian stock markets mostly closed higher on Monday, with Tokyo surging after the yen hit a near three-year low against the dollar, while concerns eased that the US Federal Reserve could soon end its loose monetary policy, dealers said.

Investors in Japan cheered reports that the likely next central bank chief was in favour of aggressive monetary easing.

US stocks opened higher on expectations of continued economic stimulus measures by central banks, but later fell back.

The Dow Jones Industrial Average was down 0.43 percent to 13,941.01 in afternoon trading.

The broad-based S&P 500 shed 0.47 percent to 1,508.54, while the tech-rich Nasdaq Composite Index slipped 0.12 percent to 3,157.87.

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