EUROPE MARKETS: Italian Political Turmoil Hits Europe Stocks

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets were firmly lower in midmorning trade on Wednesday, following a major setback in weeklong attempts to form a government in Italy.

The Stoxx Europe 600 index dropped 0.6% to 292.03, after opening in positive territory.

The turnaround was sparked by comments from Italy's Democratic Party leader Pier Luigi Bersani, he wouldn't attempt to put together a government, after struggling to form a coalition since inconclusive parliamentary elections in late February. Bersani was quoted as saying that only an "insane" person would want to govern the country in the current environment and that Italy is in a "mess."

The FTSE MIB index gave up 1.5% to 15,263.76, with banks posting some of the biggest losses. Intesa Sanpaolo SpA lost 2.5%, while UniCredit SpA shaved off 3.5%.

Most banking shares in Europe were mired in the red, also following days of uncertainty over the Cyprus banking system. The island nation earlier in the week agreed to a bailout package including a levy on bank deposits above 100,000 euros ($128,440), fueling fears that the measures could set precedent for solving future banking crisis in other euro-zone countries.

Cypriot authorities were planning to reopen the country's banks on Thursday, but customers could find their access to money limited with authorities expected to detail capital controls later on Wednesday. The Cyprus Stock Exchange was also closed for trading until Thursday. Read: Three ways for Europe to regain control of its crisis--Nomura

In Spain, shares of Banco Santander SA (SAN) dropped 3% and BBVA SA (BBVA) fell 2.6%. The IBEX 35 index traded 1.9% lower at 7,836.60.

France's BNP Paribas SA slumped off 3.7%, Crédit Agricole SA dropped 2.8% and Société Générale SA shaved off 2.7%.

Also in Paris, shares of European Aeronautic Defence & Space Co. (EADSY) shed 2.8%, after French media group Lagardere SCA Chief Executive Arnaud Lagardère said in a report in the French daily Les Echos that the firm will sell its 7.5% stake in the Airbus owner. Lagardère fell 2%.

The CAC 40 index declined 1.3% to 3,698.96.

Germany's DAX 30 index fell 0.9% to 7,810.43. Shares of Allianz SE gave up 2.4%, as the insurer said it would buy 94% of Yapi Kredi Sigorta, an insurance unit of Yapi Kredi, Turkey's fourth largest private bank by assets.

In the U.K., the FTSE 100 index moved 0.6% lower to 6,362.18, with oil firms tracking oil prices lower. Shares of BP PLC (BP) lost 0.9% and Royal Dutch Shell PLC (RDSB) dropped 0.8%.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires