LONDON (AP) -- Markets were extremely volatile Monday amid uncertainty over the outcome of the Italian general election.
Early exit polls had suggested that the center-left coalition, led by Pier Luigi Bersani, would be able to form a government, and that prompted some furious buying of stocks. Bersani has promised to meet current targets and pursue more economic reforms.
The FTSE MIB index in Milan was up around 4 percent at one stage.
But later polls suggest that it was a much closer race and that the center-right coalition, led by former premier Silvio Berlusconi, might actually win Italy's upper parliamentary chamber.
That could mean potential deadlock and the possibility of fresh elections. Uncertainty is never something markets react to positively.
"This has brought about a real possibility of a hung parliament," said Joshua Mahony, an analyst at Alpari. "No doubt this would severely limit the ability of the country to bring about and implement any meaningful and purposeful measures."
In late trading, the FTSE MIB closed up only 0.7 percent as investors grew concerned over the election outcome — especially as Berlusconi has promised to roll back some of the austerity measures introduced by the country's technocrat prime minister Mario Monti.
Italian government bonds also took a hit from where they were when the first exit polls came out. The yield on the country's 10-year bond was up 0.03 basis points at 4.43 percent. Earlier it was around 0.25 percentage point lower.
Elsewhere in Europe, Germany's DAX was up 1.4 percent, about half the gain it had earlier posted, at 7,773. The CAC-40 in France was 0.41 percent higher at 3,721 while the FTSE 100 index of leading British shares rose 0.3 percent to 6,355.
In the U.S., the Dow Jones industrial average was 0.35 percent lower higher at 13,915 while the broader S&P 500 index had also fallen 0.3 percent to 1,510.
The euro faltered too, trading 0.23 percent lower at $1.3188, having earlier pushed 0.6 percent ahead.
Italy's stability is hugely important for the future of the euro currency. Of the 17 European Union countries that use the euro, it has the second-highest debt burden as a proportion of its annual gross domestic product. Only Greece's is higher.
Considered to be too big to bail out, its future in the single currency bloc, at least as far as markets are concerned, is to enact economic reforms and tight budgetary controls.
"If Italy is to stay out of the eurozone crisis permanently, decisive action to solve the country's long-standing economic problems will need to be taken quickly," said Ben May, European economist at Capital Economics.
Full results are not expected until late Monday at the earliest.
Earlier, a convincing victory by conservative candidate Nicos Anastasiades in Cyprus' presidential election helped ease concerns over the future of the euro. Cyprus uses the euro and has struggled to agree a bailout deal with international creditors. Anastasiades indicated he would pursue a deal soon.
The focus isn't just on Europe this week. It's a particularly busy week on the U.S. economic news front, which could go a long way to determining whether the Dow Jones index strikes a new record high.
Investors are awaiting a raft of data as well as remarks from Federal Reserve chairman Ben Bernanke. Last week, the minutes from the Fed's last policy meeting showed concern over the central bank's monetary stimulus, stoking jitters in the markets. Meanwhile, lawmakers in Congress are also grappling over the budget again.
Earlier in Asia, with Japanese stocks surging on reports the prime minister's pick for central bank governor will be a strong advocate of loose monetary policy aimed at reviving the moribund economy.
The Nikkei 225 surged 2.4 percent to end at 11,662.52 while the yen dropped further against the dollar after local news outlets reported that Prime Minister Shinzo Abe was preparing to nominate Haruhiko Kuroda as the next governor of the Bank of Japan.
Since the Asian session, the yen has recovered and the dollar was trading 0.3 percent lower at 94.08 yen. Earlier it had risen to 94.76 yen and near two and a half year highs.
Over the past few weeks, the yen has fallen by around 20 percent and that's helped the Nikkei gain around 30 percent.
Elsewhere in Asia, Hong Kong's Hang Seng rose 0.2 percent to close at 22,820.08 while South Korea's Kospi ended 0.5 percent lower at 2,009.52.
In mainland China, the Shanghai Composite Index climbed 0.5 percent to close at 2,325.82 and the smaller Shenzhen Composite Index ended 0.8 percent higher at 955.79.
Oil prices tracked equities down from earlier highs, with the benchmark New York rate up only a cent at $93.14 a barrel.