London close: Italian fears spark sell-off

The top share index in London finished at its lowest levels of the day on Wednesday afternoon, as worries over the dire financial situation in Italy caused a mass sell-off across all European markets. The same worries also dampened sentiment in the US, with the three Wall Street benchmarks dropping an average of 2% on the back of fears that Italy is too big to be bailed out.ALL EYES ON ITALYThe borrowing rate on Italian 10-year bonds surged passed the critical 7% mark today, the level which economists sees as extremely dangerous and unsustainable. The spike in yields appears to have been prompted by LCH Clearnet, the London clearing house, which is reportedly demanding more collateral from the close of business tonight from investors trading Italian sovereign debt. "This move forces holders to put up more money or sell, putting pressure on prices and driving yields higher," notes CMC Markets analyst Colin Cieszynski. The news comes after the Italian Prime Minister's announcement last night, saying that he intends to resign. Silvio Berlusconi pledged to quit once Parliament has approved the annual budget, including the necessary austerity measures and economic reforms aimed at reviving the country's economic fortunes. One commentator called it 'game over' for Italy, predicting the International Monetary Fund would have to bail the country out by the end of the year. However, there are fears that Italy, the third biggest economy in the Eurozone with debts of £1.6tn - or 120% of GDP - simply has too much debt to be rescued. "The risk that Italy's precarious financial situation could topple over and cause upheaval in Europe has sparked a new wave of fear through the markets today," Cieszynski said.By 16:18 in London, the yield on an Italian 10-year bond was up 48.5 basis points (bp) at 7.158%, with the risk premium - the spread between Italian and German 10-year bund yields -well above 500bp. Yields reached 7.48% earlier in the day. Meanwhile, there were reports that advisers to the German Chancellor, Angela Merkel, have, amongst other things, recommended the creation of a 'rescue fund' to be backed by member states' gold reserves. ADMIRAL & CAPE PLUMMETS, DEFENSIVES IN DEMANDShares in insurance firm Admiral finished the day over 25% lower after it warned 2011 profits would be at the lower end of expectations due to a jump in personal injury claims. Nevertheless, group turnover rose 30% in the third quarter. Cape, the support services provider to the energy sector, suffered a slightly more dramatice fall (-30%) after saying that while revenues remain in line with expectations, it predicts that it will see "ongoing margin pressures in the Middle East and the risk of project scheduling delays during 2012". Banks were posting heavy losses with HSBC being no exception after announcing that underlying pre-tax profits fell from $4.6bn to $3bn in the third quarter. The group blames decreased revenues in its investment banking division, an adverse movement in its hedging strategy of $0.7bn and an increase in loan impairment charges, primarily in North America. Barclays, Royal Bank of Scotland and Lloyds were also lower. Lloyds' performance was not helped by Moody's after the credit ratings agency threatened to downgrades its A1 unsecured debt rating. Moody's says "the review has been prompted by the significant upheaval within Lloyds' senior management , following the announcement that the current CEO, António Horta-Osório, has had to take a temporary leave of absence." Elsewhere in the financial sector, acquisitive insurance group Resolution was also on the slide, despite announcing a 'transformational' outsourcing arrangement with Diligenta, an insurance services specialist that is part of Indian information technology (IT) contractor Tata Consultancy Services, that it says will save it pots of money. Tullow Oil fell over 5% after saying that a slower-than-expected ramp-up in the Jubilee field means that 2011 group production will now be lower than expected. Unsurprisingly, among the (few) risers were the defensive stocks, with utilities International Power, Severn Trent and United Utilities and telecoms firm Vodafone registering moderate gains. BCFTSE 100 - RisersRandgold Resources Ltd. (RRS) 7,555.00p +2.37%Smith & Nephew (SN.) 550.00p +1.20%International Power (IPR) 336.70p +0.90%Severn Trent (SVT) 1,578.00p +0.83%United Utilities Group (UU.) 619.50p +0.81%Vodafone Group (VOD) 176.70p +0.40%Next (NXT) 2,748.00p +0.07%FTSE 100 - FallersAdmiral Group (ADM) 887.50p -25.61%Essar Energy (ESSR) 284.00p -7.19%HSBC Holdings (HSBA) 506.30p -5.80%Royal Bank of Scotland Group (RBS) 21.09p -5.55%Barclays (BARC) 172.05p -5.47%Resolution Ltd. (RSL) 254.10p -5.33%Tullow Oil (TLW) 1,360.00p -5.29%Aviva (AV.) 307.80p -5.06%Capita Group (CPI) 661.00p -5.03%Investec (INVP) 357.60p -4.89%