TOKYO (Reuters) - Asian stocks extended a global sell-off on Wednesday as Italy’s political crisis rippled across financial markets, toppling the euro to a 10-month low, pushing up Italian borrowing costs and sending investors rushing to safe-haven assets such as U.S. Treasuries.
MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled 1.5 percent, while Japan’s Nikkei average sold off as much 1.9 percent to hit a six-week low. Chinese shares also headed south, with the Shanghai Composite index down 1.8 percent, South Korea’s KOSPI and Australia’s S&P/ASX 200 slipped 2.0 percent and 0.6 percent, respectively.
The sharp downturn followed from an equally harsh session on Wall Street on Tuesday, where the Dow Jones Industrial Average fell 1.6 percent, the S&P 500 lost 1.2 percent and the Nasdaq Composite dropped 0.5 percent. The financial sector took a hard hit.
Investors fear that repeat elections in the euro zone’s third-largest economy - which could come as soon as July - may become a de-facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.
“The way Italy’s short-term debt yields are spiking makes you think default risk is on radar in the market. It tells how grave the situation is,” said Makoto Noji, senior strategist at SMBC Nikko Securities.
“What the markets are starting to factor-in is not a default per se but an early election leading to a victory of eurosceptics and an exit from the euro.”
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 nearly 26
