Markets slip as Italy debt crisis deepens

Dramatic political changes at two of the Eurozone's crisis-ridden economies initially boosted world stocks but markets went into reverse as it became clear that Italy's debt woes were escalating.

Italian Prime Minister Silvio Berlusconi said late yesterday that he would step down after parliament passes budget reforms. Greece, meanwhile, was working create a consensus government under a new prime minister.

But Italy's cost of borrowing touched a new record. The yield on Italian 10-year government bonds reached seven per cent, the highest since the euro was founded in 1999.

On the FTSE 100 HSBC fell by more than four per cent after reporting a 36 per cent drop in underlying profits.

But insurer Admiral was the biggest loser, plunging by 28 per cent after issuing a profit warning.

Insurance buyout vehicle Resolution was down three per cent despite announcing a new asset management unit which it said would make the business more profitable.

Meanwhile Tullow Oil dropped five per cent after revising down its production targets.

Ex-dividend factors took 1.46 points off the FTSE 100 index with Barclays, Bunzl, and Unilever all trading without their payout attractions.

On the upside miners were the biggest risers in early trading in London with data showing Chinese inflation falling helping to allay fears that the key producer would move to rein in growth.

Xstrata was the highest climber, up 2.5 per cent. Vedanta and Rio Tinto both nudged up by 1.7 per cent.

Among financial stocks hedge fund giant Man Group edged up by 1.5 per cent, continuing to recover from a dive in price when it reported clients pulling out funds in a volatile summer of trading.

Lloyds rose slightly but was confronted with a warning from ratings agency Moody's that it may be downgraded after its chief Antonio Horta-Osorio went on long-term sick leave.

On the FTSE 250 Kesa was up nearly two per cent after it said it had offloaded its loss making Comet business. The buyer is Hailey Holdings Ltd which will pay £2.

The Nikkei closed up nearly 1.1 per cent and the Hang Seng 1.7 per cent.

Shares of camera maker Olympus fell 20 per cent. The scandal-hit firm said for the first time yesterday that contentious acquisitions helped it cover losses on securities investments dating back to the 1980s.

In UK economic news Britain's goods trade deficit widened in September to its highest since 1998 after a record rise in imports, official data from the Office for National Statistics showed.

Across the Atlantic later US weekly mortgage and refinancing indexes will be released.