European stocks cautious amid Italy woes

Europe's main stock markets closed mostly little changed on Monday, with Milan shares plunging after Italian Prime Minister Mario Monti announced his intention to resign, in the latest twist to the eurozone debt crisis.

London's FTSE 100 index of leading companies edged up 0.12 percent to 5,921.63 points, in Frankfurt, the DAX 30 gained 0.17 percent to 7,530.92 points and in Paris the CAC 40 finished up 0.18 percent to 3,612.10 points.

But in Milan, the FTSE Mib plummeted 2.2 percent to 15,354 points in the first session since caretaker Prime Minister Mario Monti said he would resign, forcing snap elections.

"For all the drama that has been surrounding Spain and Greece recently, it's Italy now everyone is focusing on today. The unsettling news out of the eurozone's third biggest economy is weighing on sentiment," said Gekko Markets analyst Anita Paluch.

In foreign exchange activity, the European single currency held steady at $1.2933, up slightly from $1.2928 late in New York on Friday. Gold prices rose to $1,708.50 an ounce on the London Bullion Market, from $1,701.50.

Meanwhile, the cost to Italy of borrowing for 10 years rose sharply on political uncertainty after Silvio Berlusconi revealed that he would challenge Monti in forthcoming elections.

In reaction to the turmoil, the 10-year yield on the market for existing government bonds jumped to 4.777 percent on Monday, from 4.525 percent late on Friday.

"Whether it's Monti's early departure or the fact that Berlusconi is going to run for office again that's proving the most unsettling for markets is clearly open for debate," said Mike McCudden, head of derivatives at brokerage Interactive Investor.

"However, many consider Italy as being on the cusp of plunging into a financial markets abyss.

Monti, caretaker prime minister since Berlusconi left office last year under a cloud of controversy, is credited with enacting deep economic reforms which had brought down sharply Italian bond yields.

"Italian elections -- possibly as early as February -- could weigh on European assets for the medium-term. The market had expected elections in April," added Kathleen Brooks, research director at trading website Forex.com.

"Monti will resign, so the market needs to weigh up the prospect of a new leader who may not want to stick to Monti's economic reform programme," she told AFP.

Natixis strategist Cyril Regnat however said the sharp rise in Italian yields "seems a bit excessive" and that real indicator of investor sentiment will come Wednesday when the Italian treasury auctions medium term debt.

In earlier deals, Asian equities mostly rose on Monday as dealers cheered an improvement in the US unemployment rate and another batch of manufacturing figures indicating China's economy is emerging from its slumber.