FTSE falls as Italian bond yields take toll

European markets were jittery as investors watched a radical overhaul of the political hierarchies in Italy and Greece aimed at ushering in a new economic dawn in the Eurozone.

Italy's president asked former European commissioner Mario Monti on Sunday to form a government, while Greece's new Prime Minister Lucas Papademos, a former central banker who oversaw his country's entry to the Eurozone in 2002, will face a confidence vote in his cabinet on Wednesday.

Italy auctioned three billion euros in five-year bonds at a yield of 6.29 per cent, with the country hoping that the replacement of Silvio Berlusconi will help to breathe new life into its finances. In a similar issue last month, the rate was 5.3 per cent.

Italian 10-year bond yields soared above seven per cent last week.

The FTSEurofirst 300 index of top European shares was down 0.2 per cent at 983.15 points after rising to a high of 990.22 in early trading.

Later in the day the FTSE 100 also turned negative after a solid start.

Banks, many of which are highly exposed to Italy and Greece and have suffered this year on the region's debt crisis, were 1.6 per cent higher and featured among the top gainers.

In London RBS was up 2.2 per cent and Lloyds 1.9 per cent, making them two of the fastest climbers on the FTSE 100.

However, broadcaster ITV was the biggest gainer, up more than four per cent after reporting an upturn in advertising revenues and forecasting that it will continue to outperform the market.

Insurer Admiral made up some of the ground lost when it issued a profit warning last week, up 3.2 per cent. Also in the sector, Aviva was up 1.5 per cent.

Few companies slid significantly on the blue chip index although investment manager Schroders lost 1.7 per cent and insurance buyout vehicle Resolution was off by just over one per cent.

In Asia the Nikkei closed up 1.05 per cent while the Hang Seng rose 1.94 per cent.