The yield on Italian 10-year bonds rose from 6.37% to a euro-era high of 6.67%.

It is feared that Italy, the eurozone's third biggest economy, could become the next victim of the debt crisis. Prime Minister Silvio Berlusconi faces a crunch vote on public finance on November 8.

Stock markets across Europe bounced up on the chance of the Italian premier's departure but returned to negative territory at.

In London, the FTSE 100 ended down 0.3%, France's Cac 40 fell 0.6%, and in Frankfurt the Dax index closed down 0.6%. But on Wall Street, the Dow Jones bucked the trend, closing up 0.71% at 12,068.4.

Concerns over Italy are overshadowing developments in Greece, where Prime Minister George Papandreou has agreed to stand down.

Mr Papandreou sealed a deal with the opposition to form a new coalition government to approve an EU-IMF bailout package.

Once the vote has been passed, it will open the way for Greece to receive the next EUR8 billion tranche of bailout loans.

The deal was welcomed by investors, with the main Athens bourse up 1.4%, lifted by the banking sector. Shares in Alpha Bank were up 6.8% while Hellenic Postbank rose 8.9%.