-Markets react to Italy's inconclusive election
-Yield on Italian government bonds rise
-Germany looking forward to talks on EU-US free trade


FTSE-100: -1.28%
Dax-30: -2.13%
Cac-40: -2.63%
FTSE Mibtel 30: -4.59%
Ibex 35: -3.13%
Stoxx 600: -1.21%

European equities moved into the red Wednesday as markets reacted anxiously over a deadlock election in Italy.

The inconclusive parliamentary election raised fears the nation's debt crisis will worsen amid political instability.

Centre-left coalition leader Pier Luigi Bersani won the lower house by less than a half a point. Former Prime Minister Silvio Berlusconi, who promised to reverse austerity measures, won a blocking minority in the Senate.

However an Italian government requires a majority in both houses.

"Total disappointment, bordering on total disbelief, in the Italian elections, saw investors run for cover and widespread cutting of major 'risk positions' in the euro and it's crosses, and despite some stabilisation this morning, where euro has tried to stage a fight back, the prevailing penchant to sell any rallies remains," according to Richard Wiltshire, an analyst at ETX Capital.

Other countries in the Eurozone remarked on the election outcome. Germany and France said the country needs to move forward on reforms while Spain described the result as a "jump to nowhere".

Against this backdrop, Italy's benchmark FTSE MIB Index was the biggest faller of the European markets.

The yield on Italian government bonds rose sharply, signalling investors were wary of lending to the country.

Germany wants EU-US free trade

Europe's biggest lender, Germany, is looking forward to free trade talks between the European Union and US.

German Foreign Minister Guido Westerwelle said Berlin hopes negotiations start this summer.

"It would bring growth and jobs. And it could do this without raising new debt. Therefore we are in full agreement that a transatlantic free trade deal needs to come. We are both serious about this," Westerwelle was quoted as saying in Reuters.

GKN's profits beat forecasts

GKN shares surged after the engineering group reported pre-tax profits ahead of expectations.

Telecom Italia fell to the lowest price since August 1997 as credit-default swaps insuring investors against a default by the Milan-based company climbed 29 basis points to 358.

Pandora jumped as the jewellery maker announced a plan to buy back 700m kroner of shares this year, equal to 3.6% of its current market value.

Royal Bank of Scotland registered losses as Nomura said the group "still faces material uncertainties with respect to deleveraging, asset quality and the future shape of operations, and remain cautiously positioned on the name".

Other asset classes drop

The euro/dollar slid by 0.03% to the 1.3059 dollar mark.

Front month Brent crude futures fell by 1.203 dollars to the 113.080 dollar per barrel mark on the ICE.

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