London: The euro and global stocks fell on Monday as political uncertainties in Greece and Italy fueled concerns that Europe's debt crisis was intensifying, prompting investors to cut exposure to riskier assets.
Concern over political instability in Italy, the euro zone's third biggest economy, overshadowed a coalition deal in Greece to help secure its latest bailout package.
The FTSEurofirst fell 1.4 per cent, adding to a 3.8 per cent decline last week which ended a five-week rally as Greece slid into political turmoil and Italy came under pressure to restore its credibility in financial markets.
The MSCI world equity index shed 0.6 per cent as emerging stocks slipped 0.5 per cent.
"The focus is Italy; Italy's clearly the big one. Everyone expected what has come out of Greece," Christopher Potts, strategist at Cheuvreux, said.
"The whole problem is the (Italian) opposition and its disarray. Who takes over and how will it be organised? No-one has the answer but it's of huge importance," he added.
An Italian parliamentary vote on budget reforms on Tuesday is turning into a crunch test for Prime Minister Silvio Berlusconi's leadership as he struggles to rein in party rebels threatening to bring down his government.
With Italy's debt levels stuck at 120 per cent of GDP, the country's debt problems would pose a much bigger risk to the financial markets than Greece does.
Italy's borrowing costs have been rising sharply over the past several weeks, with the Italian 10-year government bond yield rising more than 100 basis points since late September.
Italian 10-year government bond yields hit 14-year highs of around 6.59 per cent on Monday, hoisting their yield premium over benchmark German Bunds to their highest since 1995.
German Bund futures were last up 70 ticks on the day at 138.30.
The pessimistic view of the debt crisis weighed on the euro, pushing it 0.7 per cent lower against the dollar to $ 1.3703 .
"The euro is under pressure as Italian spreads are up and that is a real risk factor," said Jeremy Stretch head of currency strategy at CIBC World Markets. "Italy is too big to be safe and markets are fearful that political uncertainty will claim its second victim in Italy."
Brent crude eased off earlier highs, and was last flat at $ 111.93 a barrel, having risen rose above $ 113 earlier as hopes of oil demand growth overshadowed concerns about the euro zone debt crisis.
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