The euro extended losses in Asian trade Tuesday as political uncertainty in Italy stoked fresh fears about the eurozone.
WALL STREET: Prices for USA government bonds surged as investors shifted money from stocks into lower-risk investments.
Elsewhere shares in Deutsche Bank recovered some of the previous session's heavy losses, climbing 3.6 percent higher following Thursday's drop of more than 7 percent in the after a report that the U.S. Federal Reserve a year ago designated the bank's U.S. operations to be in "troubled condition".
Technology companies also fell. -North Korean summit and the U.S. They bought German and British government bonds instead, which are seen as more stable.
The Euro, which makes up about 57% of the U.S. Dollar Index fell sharply as Italy's political crisis deepened, raising the likelihood of an early election.
Italy is always just a few steps away from the "very serious risk of losing the irreplaceable asset of trust", Bank of Italy Governor Ignazio Visco said.
EURO WOES: The euro, which has been in retreat for weeks, sank further, falling to its lowest level against the dollar this year.
CURRENCIES: The dollar rose to 108.88 yen from 109.37 yen. The euro fell against the Swiss franc, Japanese yen and USA dollar, nearing $1.15 and touching its lowest point since July.
The Dow Jones industrial average sank 505 points before a slight recovery to close down 391 points - 1.58 percent - on worries that the Italian crisis could bleed throughout the euro zone.
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Short-dated Italian bond yields - a sensitive gauge of political risk - soared 1.5 percentage points from Monday to their highest since 2013 in their biggest move in almost 26 years.
Smaller U.S. companies, which tend to be more domestically focused than the large multinationals in the Dow, fared much better than the rest of the market.
US 10-year Treasuries were yielding 2.817 percent in the Asian afternoon, edging up from the USA close of 2.768 percent, while S&P futures rose 0.2 percent. The Nasdaq composite fell 0.5 percent to 7,396.59.
USA markets were closed Monday for the Memorial Day holiday. Efforts to form a government collapsed Sunday after President Sergio Mattarella rejected a nominee for economy minister, Paolo Savona, who in the past had entertained a "Plan B" to leave the euro. That ended their attempt to establish a government after inconclusive elections in March.
5-Star and the League have a solid majority in both houses of parliament, where the government will now face confidence votes early next week in order to be fully empowered.
Thursday's price action and continued recovery in the Euro after a steep sell-off earlier in the week indicates that investors have accepted that Italy has a problem, but that it may be a contained problem with less risk of contagion to the Euro Zone and nearly no risk to the global economy. Yields work inversely to a bond's price. The yield on the 10-year Italian government bond jumped to 3.10 percent from 2.69 percent, a huge move. And if they win and carry through on policies that worsen Italy's debt, investors might take fright and demand much higher rates to lend to the country.
Germany's DAX gained 1.3 percent to 12,761 and the CAC 40 in France jumped 1.5 percent to 5,476.
Numerous world's largest bank stocks declined by several percent due to the recent crisis.
UniCredit SpA Chief Executive Officer Jean Pierre Mustier said the decline in Italian bank stocks was driven by fears rather than reality based on the performance of the Italian economy or the lenders themselves.