A spiralling Italian political crisis provoked a global stock market selloff yesterday, cut the euro cut to an 11-month low and spiked short-term borrowing costs for the government in Rome.

Investors fear that repeat elections may become a de-facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.

Safe-haven US Treasury bonds rallied, as did the Japanese yen and the US dollar, but gold was nearly unchanged with spot prices at $1,301.94 an ounce early in US trading after earlier gains.

The Dow Jones Industrial Average fell 276.17 points, or 1.12 per cent, to 24,476.92, the S&P 500 lost 22.03 points, or 0.81 per cent, to 2,699.3 and the Nasdaq Composite dropped 18.84 points, or 0.25 per cent, to 7,415.02.

Short-dated Italian bond yields soared as much as 150 basis points to their highest since 2013 in their biggest move in 26 years.

The euro dropped towards $1.15 for the first time this year, down 0.8 per cent on the day. Against the Swiss franc, it fell to 1.15 francs.

Stocks in Milan slid 2.3 per cent on the main index after a 2.1 per cent fall on Monday. Bank shares slumped more than four per cent after losing the same amount in the previous session, bruised by the sell-off in government bonds, a core part of bank portfolios.

Adding to the uncertainty, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday. Spain’s bond-yield spread with Germany also went to its widest this year at 132 bps. Madrid’s IBEX bourse was down 2.2 per cent.

Asia flinched, too. Japan’s Nikkei slipped 0.6 per cent. Chinese and Hong Kong shares ended 0.6 to 0.7 per cent in the red. The dollar was up against almost all major currencies except the safe-haven Japanese yen. The US currency is heading for its best month since late 2015, a move that is hurting many emerging market countries that borrow in dollars.

Away from Europe, the focus was on the on-again, off-again US-North Korean summit and the US-China trade relationship. An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday, Japanese public broadcaster NHK reported, and the White House said a “pre-advance” team was travelling to the city to meet the North Koreans. The reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead even though President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.

Oil struggled to rebound to the near-four-year highs it set earlier in the month. Crude is under pressure from expectations that Saudi Arabia and Russia would pump more oil, even as US output rises. That has pushed the spread between Brent and US crude to nearly $9 a barrel.