Berlusconi bounce flops, world shares slump

Stocks on Wall Street dropped sharply as the "Berlusconi-bounce" wore off quickly and yields on Italian government bonds soared to new highs above 7%.

At the close (10am NZ time), the fall in the Dow Jones Industrial Average had accelerated to a 389-point drop, or 3.2%, to 11,780.94.

At one point the Dow was down 433 points. Other key indices finished as much as 3.9% lower.

The losses have wiped out all and more of the previous two days' gains and pushed the benchmarks back into negative territory for the month.

Earlier, European stocks turned sharply lower and the euro fell heavily against the US dollar as any initial relief faded over Italian Prime Minister Silvio Berlusconi's pledge to resign.

Yields on 10-year Italian bonds hit a euro-era high of 7.4% and the two-year yield hit 7.14%.

There was also continuing political uncertainty in Greece, where the details of a new interim coalition government were being hammered out three days after Prime Minister George Papandreou offered his resignation.

In a TV speech, he said an agreement had been reached with the opposition on the creation of an interim government but gave no indication of who would lead it. Reports have indicated he will be parliamentary president (speaker) Filippos Petsalnikos.

Back on Wall Street, financial and materials stocks led the declines. JP Morgan Chase fell 6.7% while Bank of America plunged 5.1%. Hewlett-Packard also fell sharply, shedding 5.4%, while Alcoa was off 5.2%.

Morgan Stanley, which fell sharply in September due to fears about its exposure to French banks, tumbled 8.6% after revealing it had a large exposure in Italy as well.

The S&P 500 index was down 3.7% to 1229.10 while the Nasdaq Composite was down 3.9% at 2621.65.

Other markets: Europe down, Asia up
The Stoxx Europe 600 index fell 1.8% at 236.06. London's FTSE 100 was also down 1.8% at 5468.82, Frankfurt's DAX was 1% lower at 5816.32 and Paris' CAC-40 was down 2.2% at 3073.21.

Asian markets ended mostly higher, supported by the Berlusconi bounce and signs that inflation is slowing in China.

Japan's Nikkei Stock Average gained 1.2% to 8755.44, Korea's Kospi edged up 0.2% to 1907.53 and Australia's S&P/ASX 200 index rose 1.2% to 4346.1.

Hong Kong's Hang Seng Index rose 1.7% to 20014.43, while the Shanghai Composite advanced 0.8% to 2524.92. India's Sensex went its own way, losing 1.2% to 17362.10.

Commodities: Oil, gold fall as US dollar rises
Oil futures fell for the first time in six sessions as the US dollar rose and markets plunged on news that yields on Italian debt topped 7%.

Light, sweet crude for December delivery settled at $US95.74, down $US1.06 or 1.1% in New York. Brent crude on the ICE Futures Europe exchange settled down $US2.69, or 2.6%, at $US111.31 a barrel.

Gold futures eased as Italy's weakening bond market raised concerns that Europe could be heading toward a credit crunch.

The contract for November delivery settled down $US7.50, or 0.4%, at $US1790 an ounce in New York.

Currencies: Euro falls, US dollar rises
The euro dropped 2% to a low of $US1.3552 in New York trading, from $US1.3834 late on Tuesday, before recovering to $US1.3556.

The dollar was at ¥77.77, compared with ¥77.72, while the euro was at ¥105.43 compared with ¥107.54.

The UK pound slipped to $US1.5953 from $US1.6092, while the dollar bought 0.9056 Swiss franc from 0.8949 franc.