The spread between 10-year Italian bonds and Germany's benchmark has reached a new record as investors worry the country may become engulfed in Europe's debt crisis.
The spread hit 300 points late Monday afternoon. The interest rate on a 10-year Italian bond was 5.67 percent while the rate on the German equivalent, considered the safest in the eurozone, traded at 2.81 percent.
The Milan stock exchange fell despite a limit on short-selling set by the stock market regulator.
Banks led the decline as the FTSE MIB's dropped 4 percent after the New York opening. Unicredit was down 10 percent and Intesa Sanpaolo 9 percent. Fiat Industrial and Telecom Italian also were among the worst performers.