European shares slumped on Monday as Italian Prime Minister Mario Monti's announcement that he will resign by year's end surprised investors and raised worries that political turmoil could derail Europe's effort to end its financial crisis.
Widely credited with restoring confidence in Italy amid a debt crisis, Monti said over the weekend that he found it impossible to lead after former Prime Minister Silvio Berlusconi's party, Parliament's largest, dropped its support.
Analysts fear Monti's unexpected resignation could spark a new round of Italian political turmoil and slow efforts to shape up the 17-country eurozone's third largest economy.
Berlusconi resigned as premier last year amid sex scandals and legal woes, unable to convince international markets that he could balance Italy's budget and pass necessary financial reforms to save Italy from a Greek-style debt crisis. Monti, a respected economist and former European Union competition commissioner, was tapped to head a government of technocrats to guide Italy.
"This [Monti's] decision has clearly been met with anxiety in the markets, with Monti's government seen as imperative to Italy's stability," Craig Erlam, market analyst for London-based Alpari, said in a note.
Italy's main stock index, the FTSE MIB, was trading down 3.2 percent at 15,200.4 in late morning trading Monday. The interest rate on the Italian government's 10-year bond — an indicator of how risky investors consider a country's ability to pay down its debt — rose 0.30 precentage points to 4.52 percent.
Other European stocks also fell in early trading. Britain's FTSE 100 was down 0.2 percent to 5,899.96 while Germany's DAX slipped 0.5 percent to 7,478.38. France's CAC-40 dropped 0.6 percent to 3,585.08.
Investors were slightly more upbeat in Asia after China reported that factory output increased 10.1 percent from a year earlier in November, a sign of recovery in the world's No. 2 economy. The inflation rate rose to 2 percent, slightly below the projected 2.1 percent, the government said Sunday.
Japan's Nikkei 225 index rose 0.1 percent to close at 9,533.75. Hong Kong's Hang Seng advanced 0.4 percent to 22,276.72. Australia's S&P/ASX 200 gained 0.1 percent to 4,557.90. South Korea's Kospi was nearly unchanged at 1,957.42.
The China data followed the release Friday of U.S. government figures showing that employers added 146,000 jobs in November, beating economists' estimates. The unemployment rate fell to 7.7 percent from 7.9 percent, although that was mainly because more people gave up looking for work.
In commodity markets, the benchmark oil contract for January delivery was up 50 cents to $86.43 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 33 cents to finish at $85.93 per barrel on the Nymex on Friday.