You're reading: Stocks fall as Europe’s debt crisis rages on

PARIS (AP) — Investors ratcheted up the pressure on Europe on Wednesday, driving up the interest rates countries pay to borrow money and dumping stocks amid continuing unease over the continent's debt crisis.

Tuesday saw a run on both European stocks and bonds as investors questioned the viability of Italian Prime Minister in-waiting Mario Monti. The respected economist was put in place to right Italy’s economy and hopefully stop the spread of the crisis, which is already threatening Spain and even nipping at France.

A modest rally in the debt markets initially took hold Wednesday — with some speculating that the European Central Bank was buying up bonds to ease pressure after the previous day’s carnage.

The central bank only confirms its interventions each Monday for the week previous, but it has often moved in to buy the bonds of wobbly countries to push down their yields — preventive medicine it hopes will avoid the need for future bailouts.

But the relief didn’t last long and by afternoon, the yield or interest rate on 10-year Italian bonds was back dangerously near 7 percent — the threshold that eventually forced Greece, Ireland and Portugal to seek bailouts. That’s particularly worrying since Italy is considered too big to rescue.

Spain and France are also under pressure, with their yields rising to 6.35 percent and 3.65 percent, respectively.

Monti’s announcement on Tuesday that he had secured broad support in Parliament initially provided some relief, but investors are unsure how long that will hold when his government imposes tough reforms. His cabinet was expected to be announced later Wednesday.

Greece’s new prime minister Lucas Papademos’ government also faces a confidence vote later in the day — which he is expected to win. Both leaders are struggling to hold together shifting political alliances in order to push through unpopular reforms.

After a couple of rough days, Europe was mostly down again Wednesday.

Germany’s DAX fell 1.2 percent to 5,860, while France’s CAC-40 dropped 0.1 percent to 3,045. The FTSE index of leading British shares was 0.4 percent lower at 5,493.

On Wall Street, shares opened lower — the Dow Jones industrial average was down 0.8 percent at 12,004 while the broader Standard & Poor’s 500 index fell 0.9 percent to 1,246.

The euro fell a further 0.1 percent to $1.3482 after a day of big losses.

That reflects analysts’ concerns that the crisis is far from over, and that more European Central Bank intervention is the only way out of it. The ECB is very reluctant to increase its involvement — refusing to be a lender of last resort for troubled countries, for instance — but many see no other solution.

"If there is a long-term solution to the crisis this will be based upon the ability of politicians to win back credibility via pledges to maintain good budgetary practices. This morning’s expected announcement of a new cabinet in Italy and a successful vote of confidence in the new Greece PM today will be a step in the right direction," said Jane Foley of Rabobank. "However, political maneuvering takes time as does the implementation of budget reform. The ECB could be instrumental in buying some of this time."

Earlier in the day, Asian markets were also pessimistic about Europe’s prospects.

Japan’s Nikkei 225 index lost 0.9 percent to close at 8,463.16, a six-week closing low. Hong Kong’s Hang Seng dropped 2 percent to 18,960.90 and South Korea’s Kospi shed 1.6 percent to 1,856.07. Benchmarks in Singapore, Taiwan, and Australia also fell.

Mainland China’s benchmark Shanghai Composite Index lost 2.5 percent to 2,466.96, its lowest closing this month. The smaller Shenzhen Composite Index dropped 2.6 percent to 1,059.24.

Energy prices, which typically rise when economies are strong because demand increases, bucked the trend. Benchmark crude rose $1.07 to $100.44 a barrel in electronic trading on the New York Mercantile Exchange