Luca Bruno, Associated Press
LONDON — Sentiment in the world's markets remained fragile Wednesday ahead of the reopening of Cyprus' banks and the ongoing political stalemate in Italy.
Cypriot banks, which have been closed for the best part of two weeks, are due to start doing business again on Thursday following an international bailout agreement that's caused jitters around the world — but particularly in Europe — over the safety of deposits. Under the terms of the bailout, Cyprus is closing its second-largest bank, Laiki, and raiding big deposits in it, as well as in Bank of Cyprus.
The banks will have a number of restrictions imposed on them in order to prevent large-scale withdrawals that would further dent their prospects and damage the country's economy.
While the uncertainty over Cyprus remained, investors were also growing increasingly cautious about developments in Rome, where center-left leader Pier Luigi Bersani was struggling to form a government, a month after inconclusive elections.
"If a coalition that remains amenable to austerity can be cobbled together then Italy may limp on without a new crisis," said David Jones, chief market strategist at IG. "However, if there is one thing the eurozone situation has taught us it is that it is best not to hope for the most sensible outcomes, or for quick solutions."
In Europe, the FTSE 100 index of leading British shares closed down 0.6 percent at 6,364.03 while Germany's DAX fell 1.3 percent to 7,781.12. The CAC-40 in France ended 1.5 percent lower at 3,694, while Milan's main FTSE MIB index dropped 1.5 percent to 15,265.43.
The euro also remained under pressure, trading 0.8 percent lower at $1.2759. The currency has been on the slide since a top European official said the Cyprus bailout may be a model for the future. Though others have since sought to dismiss that idea, the thought has unsettled investors.
Rising worries over the future of the eurozone was visible in the bond markets too. The yield on Spain's 10-year bond — a gauge of investors' concerns — rose 0.11 percentage point to 5.04 percent, while Italy's jumped 0.13 percentage point to 4.67 percent.
"Despite the efforts of various eurozone politicians to reassure depositors that Cyprus's banking bail-in will not be used as a template, they will find it difficult to re-seal the can of worms," said Jane Foley, senior currency strategist at Rabobank International.
In the U.S., the Dow Jones industrial average was down 0.6 percent at 14,472 while the broader S&P 500 index fell the same rate to 1,554. On Tuesday, the Dow ended at a record closing high and the S&P just short of its all-time record.
Earlier, Asian stocks fared better as they rose in the slipstream of Tuesday's advance in U.S. stock markets, which saw the S&P 500 edge up towards an all-time high and the Dow rise to a new record.
Japan's Nikkei rose 0.2 percent to 12,493.79 while Hong Kong's benchmark Hang Seng index rose 0.6 percent to close at 22,464.82. In mainland China, the Shanghai Composite Index advanced 0.2 percent to 2,301.26 while the smaller Shenzhen Composite rose 0.3 percent to 955.24.
Oil prices tracked equities after hitting a five-week high on Tuesday — the benchmark crude rate for May delivery fell 59 cents to $95.75 a barrel.