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New York markets pre-open: Italian turmoil grips global stocks, bonds

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? Italy's political turmoil roils bond, stock markets

? Short-term Italian borrowing costs break through 2% for first time since 2013

? Spanish bonds fall as PM faces no-confidence vote

? Euro falls

? Brent crude gains, but WTI falls

Italian bonds plunged on fears fresh elections could boost support for eurosceptics and set off a confrontation with the eurozone. Stocks and the euro tumbled. Ten-year U.S. Treasury yields lost over 7 basis points, with futures pointing to the S&P 500 Index opening 0.81% lower. U.S. crude oil dropped further as major oil producers seemed prepared to increase oil output, though Brent crude oil reversed some recent losses.

Italian bond markets went into a tailspin as President Sergio Mattarella turned to former International Monetary Fund official Carlo Cottarelli to form a temporary government after attempts to form a populist coalition government collapsed. With Cottarelli unlikely to survive a confidence vote, elections look likely in September.

"As in Greece, the next Italian government is unlikely to actually leave the eurozone and lower pensions by redenominating them in a new, less valuable currency," analysts at PNC said in a research note. "But a confrontation with the EU could lead to capital controls on Italy and a renewal of European financial turbulence, especially since Italy is much larger and more important to the eurozone than Greece."

The 2-year yield on Italian government bonds soared 147 basis points to 2.415% while the 10-year yield surged over 37 basis points to 3.045% as of 7:07 a.m. ET. Short-term borrowing cost broke through 2% for the first time since 2013. The FTSE MIB stock index plunged 3.2% in Milan, with the country's two biggest banks, UniCredit SpA and Intesa Sanpaolo SpA, both sliding more than 5%.

Spanish government bonds also fell and 10-year yields gained 8 basis points to 1.605% as Prime Minister Mariano Rajoy was set to face a vote of no confidence on June 1. Yields on Portuguese government bonds rose more than 12 basis points to 2.169%, after earlier spiking as high as 2.521%. Millennium BCP, the biggest listed Portuguese bank, slumped almost 8%.

The Euro Stoxx 50 lost 1.52% and the FTSE 100 shed 1.41%. Safe-haven German Bunds rose, with 10-year yields falling 8 basis points to 0.270%.

The euro fell 0.77% against the dollar around 7:08 a.m. ET.

"We still believe that Italy doesn't pose systemic risks to the single currency but also acknowledge that we need data to get back on track to stem the bleeding," TD Securities said in a research note.

Yields on 10-year U.S. Treasurys lost 8 basis points to 2.849% in a mixed response to the political turmoil in Italy and falling oil prices, according to ING. The Japanese yen strengthened 0.54% against the dollar, and sterling fell 0.53% against the dollar.

Overnight, stocks fell 0.47% in Shanghai and Hong Kong's Hang Seng index closed 1% lower, with Japan's Nikkei down 0.55%.

Brent crude oil edged up 0.40% to $75.60 per barrel on the ICE Futures Exchange and the West Texas Intermediate crude oil futures fell 1.49% to $66.87 a barrel. A planned output increase comes in light of growing concerns regarding the impact of rising oil prices on economic growth and inflation.

The Turkish lira shed 0.92% against the dollar after rallying May 28 as the central bank simplified its policy framework and set the one-week repo rate as the new benchmark. The central bank's move may provide some stability to the currency, ING said. The lira is "extremely undervalued," according to ING.

Gold ticked down 0.01% to $1,308.90 per ounce.

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The day ahead:

9:00 a.m. ET — U.S. S&P corelogic Case-Shiller HPI

10:00 a.m. ET — U.S. consumer confidence (Econoday consensus: 128.1)

10:00 a.m. ET — State street investor confidence index

10:30 a.m. ET — Dallas Fed manufacturing survey (Econoday consensus: 23.2)

7:50 p.m. ET — Japan retail sales (Econoday consensus: 1.1% yearly)