ROME (AP) -- Italy's stock market fell sharply and its borrowing costs jumped Monday as investors and European leaders worried over the country's political and financial future following Prime Minister Mario Monti's surprise decision to resign.
The country's main stock index, the FTSE MIB, was trading down 3.6 percent at 15,128 in lunchtime trading Monday. Meanwhile, 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 0.33 percentage points to 4.8 percent.
Monti said Saturday he would resign earlier than expected after Parliament passes its 2013 budget, saying it was impossible to carry on in government after the political party of former Premier Silvio Berlusconi withdrew its support in two crucial votes last week.
“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.
The move by Monti to step down, probably later this month, will mean that Italy is on course to hold its general elections in February next year _ some six weeks earlier than planned. Berlusconi announced over the weekend that he was going to run for the premiership.
Monti was tapped by Italy's president to lead the country in late November 2011 after Berlusconi stepped down after international markets lost confidence in his ability to save the country from a Greek-style debt crisis. Monti, a respected economist and former European commissioner, won back a degree of international credibility through a series of tax hikes and fiscal reforms that were deeply unpopular at home.
Analysts had predicted a selloff Monday, even though Berlusconi's People of Freedom party trails in the polls and Italy's center-left Democratic Party, which is expected to win February elections, has pledged to continue with Monti's reforms.
The interest rates on Italy's 10-year bonds had been down from highs of nearly 6.4 percent in July to a 4.37 percent two weeks ago. The drop was mainly thanks to the offer of help from the European Central Bank to help reduce a country's borrowing costs by buying up unlimited amounts of short-term debt.
German Foreign Minister Guido Westerwelle warned Monday that Italy must not abandon the reforms it has begun.
“Italy has two-thirds of the route of reform behind it, but the final third is now decisive and so a halt to the policy of reform would entail not just a significant weakening of Italy, but also could bring new turbulence to Europe,” he told reporters as he arrived in Brussels. “So my appeal to all of those in positions of responsibility in Italy is to be aware of their responsibility not just for Italy but for all of Europe.”
If Monday's financial and political turmoil weren't enough, a related drama unfolded in a Milan courtroom, where Berlusconi is on trial for allegedly having sex with an underage Moroccan woman and then using his office to cover it up. He and the woman deny the accusations.
The woman, Karima el-Mahroug, was due to testify Monday but failed to show up, telling her lawyer in a text message that she was out of the country and giving no indication when she would return, news reports said.
Prosecutor Ilda Boccassini, who has waged other legal battles against Berlusconi, immediately concluded in court that el-Mahroug, known as Ruby, had been kept away by Berlusconi's defense to delay the trial until elections, the reports said.
In his many legal battles, the billionaire media mogul has frequently seen the statute of limitations expire before all levels of appeal are exhausted. In addition, during his three elected terms as premier, Berlusconi's forces in parliament frequently pushed through legislation designed to help him and his allies in the courts.
In October, a Milan court convicted Berlusconi of tax fraud in connection with dealings in his media empire and sentenced him to four years in prison. He is appealing. Convictions don't become final in Italy until after two levels of appeals are exhausted.
A conviction in the Ruby case would be another blow, particularly since a verdict was expected as early as January, just before the election. Italian media have speculated Berlusconi has re-entered the political fray, irked because Monti's Cabinet passed a measure that would ban anyone from running for office who had been sentenced to more than two years in prison after convictions are definitely upheld in cases of terrorism, organized crime and offenses in public office, including corruption.
Corriere della Sera columnist Antonio Polito seemed almost ashamed by Berlusconi's maneuvering, lamenting in a front-page editorial that the Monti “armistice” had lasted just 13 months. “The war continues. The world looks at us, incredulously.”
Luca Ricolfi, a columnist for La Stampa who has criticized Monti for concentrating so much on reducing the budget deficit through raising taxes, said he couldn't help but pay homage to Monti.
“I don't know if Monti has saved Italy but I am certain that without him we would be worse off today than we are.”
Geir Moulson in Berlin contributed.
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