Italy-German spread widens to 248 points

Milan falls, but other European financial markets show gains

Italy-German spread widens to 248 points

Milan, September 4 - Uncertainty about Italy's political future roiled Milan's top stock exchange Wednesday while other European financial markets showed small gains. The FTSE-Mib shed fully 1.35% to close at 16,712 points as doubts flared once again over the prospects for the country's fragile coalition government. Ex-premier Silvio Berlusconi and his supporters in the People of Freedom (PdL) political party resumed their threats to pull out of the coalition and allow the government to collapse if their coalition partner the Democratic Party (PD) doesn't halt threats to eject Berlusconi from the Senate. Under a recent anti-corruption law, Berlusconi stands to lose his seat following his conviction one month ago for tax fraud. The PdL argues that the new law should not apply to the three-time premier because it came into force after his conviction. A Senate committee will begin hearings on the issue next week, with a final vote likely before month end. The renewed turmoil seemed to rattle investor confidence, which was reflected on bond markets where the spread between Italy's 10-year bond and its German counterpart widened to 248 basis points, up slightly from Tuesday's close of 240 basis points. The yield on Italian 10-year paper closed at 4.41%, up slightly from Tuesday's 4.34%. The spread between lending rates in the two countries is seen as an indication of investor faith in the Italian economy and its ability to cope with a lingering recession. On other European markets, Frankfurt's DAX rose by 0.19% to close at 8,195.92 points, while Paris's CAC 40 gained just 0.16% to close at 3,980.42 points, and Spain's IBEX 35 edged up by 0.53% to 8,490.30 points. In London, the FTSE index of leading British shares was essentially changed, gaining 0.10% to close at 6,474.74.

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