Europe’s share markets and the euro both took a tumble yesterday as reports that Italy’s long-awaited budget was facing a delay compounded an already groggy globalmood after the third US interest rate rise of the year.

Italy’s main Milan bourse slumped as much as two per cent with the country’s big banks down even more as the country’s borrowing costs also hit a three-week high in the government bond markets.

Investors have been anxious about Italy’s budget which some fear could lead to a blowout of the country’s deficit, and put the coalition government on a collision course with the European Union.

Rome confirmed that a Cabinet meeting over budget targets was planned for the evening, dismissing an earlier report in the Corriere della Sera newspaper that it could be delayed.

But it couldn’t soothe the markets, especially after the economy ministry was forced to deny its chief Giovanni Tria, an academic who doesn’t belong to any one party, had threatened to resign.

The strains weighed on the rest of Europe too, with the STOXX 600 still in the red despite an attempted rebound and the euro down 0.25 per cent in the currency markets having skidded all the way down to $1.17.

That fall also gave the dollar a boost after it had only managed a lazy gain after the Federal Reserve hiked US interest rates on Wednesday by another 25 basis points to a range of two per cent to 2.25 per cent.

The dollar index which measures the greenback against a basket of currencies, was last up 0.4 per cent to 94.529.

The index had scaled a 13-month high in mid-August, drawing safe-haven demand as trade tensions buffeted riskier emerging market currencies. The index has since fallen about 2.8 per cent though as investors have become more nuanced in their views.

Overnight, MSCI’s index of Asia-Pacific shares outside Japan had ended lower.

There were, however, pockets of resilience such as South Korea’s Kospi, which hit three-month highs, as it resumed trade after a three-day public holiday.

Japan’s Nikkei briefly touched an eight-month high, too, as signs that the United States may not impose further tariffs on Japanese automotive products for now lifted carmakers, though the index eventually ended down one per cent.

Meanwhile, rising oil prices became another major pressure point for energy importers and they gained again ahead of US sanctions coming into force on Iranian exports due in November.

Global benchmark Brent was 0.7 per cent at $81.88 per barrel, near the four-year high of $82.55 set on Tuesday. West Texas Intermediate (WTI) crude futures gained one per cent to $72.34 a barrel.