Latest News

PARIS — Stocks fell Tuesday across Europe and investors sold Italian bonds, a day after an inconclusive election in Italy raised fears that political deadlock there could hamper efforts to restore the economy and complicate the governance of the euro zone.

Turning out in low numbers, voters on Monday appeared to have given the center-left Democratic Party a lead in the Lower House of Parliament, with 29.6 percent of the seats, and about one- third of the Senate. But the center-right party of former Prime Minister Silvio Berlusconi, the People of Liberty, had a significant share of the vote too, taking about 29.2 percent of the Lower House and the largest share of the Senate, though still far short of a majority.

Prime Minister Mario Monti's party, which had helped restore investor confidence at the cost of unpopular spending cuts and tax increases, dropped into last place, behind the protest vote winner, the Five Star Movement of the former comedian Beppe Grillo. The result left the recession-weary nation with no clear path forward and the possibility that another round of elections will be necessary.

In midmorning trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 2.45 percent, while the FTSE 100 index in London dipped 1.25 percent. The yield on the Italian 10-year sovereign bond, which moves in the opposite direction of the price, gained 0.26 percentage points, to 4.74 percent. The MIB index in Milan was down 4.01 percent.

Bond yields have a direct effect on government financing costs, and it was the rise in Italian and Spanish government yields that led the European Central Bank to promise last July that it would do whatever necessary to save the euro.

The euro, which fell sharply on Monday, was up slightly at $1.3104 from $1.3056 late Monday in New York.

Uncertainty about the Italian situation has echoed around the world. Asian shares dropped Tuesday, with the Nikkei 225 stock average in Tokyo sliding 2.3 percent and the Hang Seng index in Hong Kong down 1.32 percent. That followed on a sell-off Monday in New York that sent the Standard & Poor's 500 index declining 1.8 percent and the Dow Jones industrial average down about 1.6 percent.

Luis de Guindos, the Spanish economy minister, said on Tuesday that he was confident that the negative impact of the Italian vote on financial markets would be "only in the short term." He told Spanish reporters that Italy would eventually manage to form "a stable government," which would also be in the interest of Spain and the rest of the euro zone.

Mr. de Guindos was speaking after Spain's borrowing costs rose on Tuesday morning on news of the preliminary results of the Italian vote. Still, Mr. de Guindos argued that Spain had built up a strong buffer in terms of its financing needs by taking advantage of improved market conditions and front-loading its bond auctions since the start of the year, notably last week when it sold ¤11 billion of debt. "Spain has a very important liquidity position at the moment," the minister said.

The German economy minister, Philipp Roesler, said Tuesday he could have imagined a better outcome for pro-reform parties in Italian elections, and added that the euro zone's third largest economy needed to continue to implement reforms, Reuters reported from Berlin.

"There is no alternative to the structural reforms that are already underway and which include consolidating the budget and boosting competitiveness," Mr. Roesler said in a statement, adding that all parties in Italy needed to help stabilize the heavily indebted state.

According to a recent and wide-ranging study on the reform prospects for countries in the euro zone, the Lisbon Council, a research organization based in Brussels, concluded that Italy ranked last among all countries that use the euro in terms of its ability to generate economic growth over the long term.

"The election result has been much tighter than exit polls had projected," Holger Schmieding, chief economist at Berenberg Bank in London, said in a research note, adding: "Uncertainty could weigh on markets until the dust has settled in Rome."

The main danger, he said, is that if Mr. Grillo's party were to come out ahead in a new round of elections and team up Mr. Berlusconi's party, that "could theoretically lead to a referendum about the euro."

That could jeopardize the efforts by governments and the European Central Bank over the last few years to hold the currency union together.

Mr. Schmieding said such an outcome was nonetheless "very unlikely," as even if a referendum were to be held, "we would expect Italians to prefer the euro over a scenario of chaos, instability and bank runs."

Raphael Minder in Madrid and Landon Thomas Jr. in London contributed reporting.