Italy’s market watchdog imposed a week-long ban on the short-selling of shares in banks and insurance companies as the Milan stock index plunged amid fears over the country’s financial stability.
Milan’s main stock index,the FTSE-MIB,closed down 2.8 per cent after being down by more than 5 per cent in the morning. European markets have been battered by fears that countries with weak finances,like Spain and Italy,could be next to need sovereign bailouts.
Investors worry that Spain could need a sovereign bailout as its borrowing rates remain prohibitively high. A bailout for Spain would stretch Europe’s financial resources. The continent’s bailout fund would have no more money to help Italy.
In a short sale,investors sell stock that they do not own,betting that they can buy it back at a lower price. Short-selling of shares has been blamed for driving down markets during the financial crisis and several European regulators have in the past imposed temporary bans on the practice. Italy in February let expire a ban that had been imposed the previous summer.
Premier Mario Monti said the situation for the eurozone was “difficult.”
“It is a motive for us to search for solid relations in the real industrial and commercial economy,” Monti said during a visit to Russia that included the signing of business deals.
He emphasised the strategic importance of Russia for Italy,highlighting USD 55.68 billion in annual trade.
Meanwhile,the Italian government’s borrowing rates rose on concern that it may need a bailout. The 10-year bond yield rose 0.25 percentage points to 6.32 per cent.
Fresh figures from Eurostat showed that Italy’s debt to GDP ratio has reached 123 per cent,the second highest in Europe after Greece.
In Milan,trading in some banks and financial groups such as banks UniCredit and Intesa Sanpaolo and insurance company Generali was halted temporarily in the morning because of excessive losses.