World Markets: Sink or swim for Berlusconi

Equities on both sides of the Atlantic began the week in the red as Greece agreed to form a new government and Italy's Prime Minister Silvio Berlusconi denied reports he planned to resign.

In Europe, the Stoxx 600 Index closed with a 0.6 per cent drop for the day.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.75 per cent, the Standard & Poor's 500 Index dropped 0.86 per cent and the Nasdaq Composite Index shed 1.81 per cent.

Europe's sovereign debt crisis is roiling governments of troubled countries with Greece and Italy grabbing the most attention as Berlusconi struggled to maintain power ahead of a key vote in Parliament tomorrow on the 2010 budget report for the euro zone's third-largest economy.

Today's market is "solely driven by whether Italy's Berlusconi will resign or not," Peter Boockvar, equity strategist at Miller Tabak + Co in New York, told Reuters. "We will thus have another week of markets being driven by politicians."

Berlusconi denied reports of his plans to resign, calling them "totally unfounded," according to newspaper Libero.

"The market is trading on headlines," Jeremy Batstone-Carr, head of research at Charles Stanley & Co in London, told Bloomberg News. "In an environment such as this with a kaleidoscope of news coming out of Europe, we are going to see extraordinary volatility. It is a real swamp of a market for investors, there is no clear direction."

The euro fell, last down 0.4 per cent on the day to US$1.3740.

Yields on Italy's 10-year bonds rose as high as 6.68 per cent, approaching the 7 per cent level that drove Greece, Ireland and Portugal to seek bailouts, according to Bloomberg.

Meanwhile, Greek leaders are working hard to form a coalition government aimed at approving a new emergency aid package. Local reports say former European Central Bank vice president Lucas Papademos will succeed George Papandreou as prime minister.

In France, President Nicolas Sarkozy's government announced more austerity measures in an effort to preserve the nation's AAA credit rating.

Needless to say, there will be plenty to discuss at the euro-zone finance ministers' meeting in Brussels today.

Separately, the ECB today said that it had stepped up purchases of euro zone government bonds, buying 9 billion euros last week.

Benefitting from all the turmoil in Europe were US Treasuries and gold. Gold for December delivery rose 1.7 per cent to US$1,786.50 an ounce. Ten-year US Treasuries advanced, pushing yields six basis points lower to 1.98 per cent.

There was good news in the US including a statement by United Parcel Service that it might boost the number of staff hired during the holiday season by 10 per cent from last year because of the increase in online shopping.