Italian Prime Minister Mario Monti yesterday played down market fears over his decision to resign, saying there was no danger of a vacuum ahead of an election in the spring.
"Markets should not fear a vacuum of decision making in Italy," he told a press conference in Oslo where he attended the Nobel peace prize ceremony.
But Italy's stock market fell sharply and its borrowing costs jumped yesterday as investors and European leaders worried over the country's political and financial future.
Italy's main stock index, the FTSE MIB, fell 2.3 per cent to 15,340. 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 0.30 precentage points to 4.52 per cent.
Other European stocks also fell in early trading but regained ground after the stocks inched higher on Wall Street.
Monti said on Saturday he would resign earlier than expected after Parliament passes the state 2013 budget, saying it was impossible to continue after the political party of former Premier Silvio Berlusconi withdrew its support in two crucial votes last week.
Monti said yesterday he is not currently considering whether to stand in elections early next year.