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Italy's cost of borrowing has touched a new record, approaching 7%, a day after Prime Minister Silvio Berlusconi said he would resign once budget reforms are passed.
The yield on Italian 10-year government bonds reached 6.98%, the highest since the euro was founded in 1999.
Investors fear that the eurozone's third-biggest economy could become the next victim of the debt crisis.
Separately, the make-up of Greece's new government is expected to be announced.
The higher the yield - the implied cost of borrowing - goes for Italy, the more likely it is that Italy's huge economy will need to be bailed out - something that the eurozone has been desperately trying to avoid.
Italy has to roll over more than 360bn euros (�309bn) of debt in 2012.
The BBC's business editor Robert Peston said: "No one wants to lend to a country when that country would use the loan to pay the interest on previous loans - that's throwing good money after bad."
On Tuesday, Mr Berlusconi said that he planned to resign after won a budget vote, but did not succeed in getting an absolute majority in the lower house of parliament.
Stocks fall
The stock markets in Europe turned lower, after briefly adding to Tuesday's gains.
?Start Quote
End QuoteWhen the implicit interest rate rises to that kind of level, investors know that a country with big debts can't afford to repay what it owes?
Italian stocks were lower, while the benchmark German and French stock indexes were flat.
French banks, which are heavily exposed to Greek debt, continued to rally.
Shares in BNP Paribas rose 2.2%. Societe Generale gained 2.1% and Credit Agricole rose 1.8%.
On Tuesday, SocGen reported that quarterly profits had fallen by 31% because of a 60% write-off on its Greek loans.
Greece, which has been bailed out twice and is undergoing painful austerity cuts, also looks close to forming a new government.
In some good news, record exports pushed the trade surplus of Germany - Europe's largest economy - to a three-year high in September, data showed on Tuesday.
Source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-15652708
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