European stocks end lower amid fresh Italian jitters; Tech shares hit 17-year high

Italian stock and bond prices finished lower Tuesday, weighing on the broader European equity bourses, as the countrys new prime minister outlined the coalition governments vision for the eurozones third-largest economy.

However, European tech stocks overall were pushed to a multiyear high, bolstered by gains for their Wall Street counterparts.

How markets performed

The Stoxx Europe 600 Index
SXXP, -0.31%
ended down by 0.3% at 386.89, as financial shares lost the most while tech shares climbed. On Monday, the benchmark rose 0.3% and marked its best finish in a week.

Pressure came from a slump in Italian stocks. The FTSE MIB index
I945, -1.18%
stumbled 1.2% to end at 21,750.15. Italian bond prices also fell, pushing the countrys 2-year bond yield
TMBMKIT-02Y, +27.17%
up by 28 basis points to 0.99%, according to Tradeweb. Yields rise when bond prices fall.

U.K. blue-chips declined as well, leaving the FTSE 100
UKX, -0.70%
down by 0.7% to 7,686.80. That index fell victim to a rise in the
GBPUSD, +0.6686%
which climbed following a better-than-expected report on British services-sector activity in May.

Germanys DAX 30 index
DAX, +0.13%
rose 0.1% to 12,787.13, paring an intraday rise of roughly 1%. Frances CAC 40 index
PX1, -0.22%
fell 0.2% to close at 5,494.88. Spains IBEX 35
IBEX, -0.66%
fell 0.7% at 9,686.40.

The euro
EURUSD, +0.2308%
rose to $1.1722 Tuesday following reports that the European Central Bank would use its June 14 policy meeting to discuss an exit from its quantitative-easing program. Late Monday, the shared currency bought $1.1699.

See: Why a bet against the dollar makes sense as trade-war fears fester

What drove markets

The Stoxx Europe 600 was dragged into the red as losses in Italian stocks accelerated. Investors started to ditch Italian equities as Giuseppe Conte, Italys new prime minister, outlined radical change from the countrys new coalition government.

Conte, in his first address to Italys senate said the governmentheld between the antiestablishment 5 Star Movement and the League partieswants to cut the countrys heavy debt load by fostering economic growth through welfare spending and cutting taxes. Italys debt exceeds roughly 130% of the countrys gross domestic product.

We want to reduce [debt] through the growth of our wealth, not with the austerity that has contributed to its rising, Conte said, according to Dow Jones Newswires.

A confidence vote on the new government, which was sworn in on Friday, was to be held in the Senate on Tuesday, while another vote was expected Wednesday in the lower house.

Italian stocks and bonds have been volatile in recent sessions as a previous governing agreement between the 5 Star Movement and the League parties crumbled last week, but a new deal revived the union.

Read: ECB cut back buying of Italian bonds in May, drawing Romes ire

Also check out: Not so fast on Italyexpect conflict and trouble within the new coalition

Meanwhile, European tech shares strengthened, sending the Stoxx Europe 600 Technology Index
FX8, +1.45%
up 1.5% to hit its highest since 2001, FactSet data showed. Semiconductor stocks were among top performers, with ASM International NV
ASM, +5.83%
ending up 5.8% and STMicroelectronics NV
STM, +4.33%
finishing up 4.3%.

The moves followed Mondays tech-fueled rally on Wall Street that left the Nasdaq Composite
COMP, +0.24%
at its first record close since March 12, buoyed in part by Apple Inc.
AAPL, +0.62%
The iPhone makers shares hit a new all-time high on Monday, the first day of the companys WWDC developer conference. Apple shares were gaining ground as European trading closed.

What strategists are saying

With regards to [Italys ] fiscal expansion in particular, the new governments problem is twofold, said Norbert Aul, a strategist at UBS, wrote in an early Tuesday research note. [O]n the one hand, Italy has undertaken the obligation to continue consolidating its fiscal position in order to satisfy the requirements of the Stability and Growth Pact and the Fiscal Compact; and, on the other, it also faces market constraints due to the high level of government debt, he said.

This means that well before the government is in a position to negotiate its fiscal plans with Brussels, there are limits to the fiscal expansion the market may be willing to allow the new government to undertake, Aul wrote.

Stock movers

Italian bank stocks finished lower, with investors concerned about their exposure to Italian government debt. UniCredit SpA
UCG, -3.56%
fell 3.6%, Intesa Sanpaolo SpA
ISP, -3.83%
gave up 3.8% and BPER Banca SpA
BPE, -3.40%
lost 3.4%.

Sticking with banks, Royal Bank of Scotland
RBS, -5.30%
RBS, -2.57%
shares dropped 5.3% to 拢2.66. Thats below the 拢2.71-a-share price at which the U.K. government late Monday sold shares as it unloaded another 7.7% stake in the lender. British taxpayers paid on average 拢5 per RBS share during a bailout 10 years ago.

Smurfit Kappa Group PLC shares
SK3, -6.89%
slid 6.4%, the biggest decliner on the Stoxx 600, as a Wednesday deadline approached for International Paper Co.
IP, +0.33%
to make a new buyout offer or walk away, an Irish takeover paneled had ruled in May. Last month, Smurfit rejected an 8.9 billion euro ($10.6 billion) takeover approach from IP.

EasyJet PLC
EZJ, -2.47%
fell 2.5% even after a ratings upgrade to hold from sell at Liberum. Meanwhile, Air France-KLM
AF, -4.97%
was dragged down 5%, with Bernstein Research saying problems are mounting for the airline, including competition in its core domestic market and a running battle with French unions. The Stoxx Europe 600 Travel & Leisure
SXTP, -0.66%
closed down by 0.7%.

Economic data

The final May readings on eurozone services activity came in at 53.8 from IHS Markit versus Aprils print of 53.9. The U.K.s services sector PMI was 54.0, higher than a FactSet consensus estimate at 53.1, and up from Aprils reading of 52.8.

Carla Mozee

Carla Moz茅e is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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Quote References SXXP -1.22 -0.31% I945 -259.80 -1.18% TMBMKIT-02Y +0.21 +27.17% UKX -54.49 -0.70% GBPUSD +0.0089 +0.6686% DAX +16.38 +0.13% PX1 -11.96 -0.22% IBEX -63.90 -0.66% EURUSD +0.0027 +0.2308% FX8 +6.88 +1.45% ASM +2.98 +5.83% STM +0.88 +4.33% COMP +17.88 +0.24% AAPL +1.19 +0.62% UCG -0.52 -3.56% ISP -0.10 -3.83% BPE -0.15 -3.40% RBS -14.90 -5.30% SK3 -2.46 -6.89% IP +0.19 +0.33% EZJ -44.00 -2.47% AF -0.37 -4.97% SXTP -1.77 -0.66% Show all references
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STOXX Europe 600 Index STOXX: SXXP 386.89 -1.22 (-0.31%)

Volume 0
Open 387.86
High 390.02
Low 386.89
P/E Ratio 0
Div Yield 0
Market Cap N/A

FTSE MIB Index Italy: Milan: I945 21,750.15 -259.80 (-1.18%)

Volume 0
Open 21,945
High 22,195
Low 21,750
P/E Ratio 0
Div Yield 0
Market Cap N/A

Italy 2 Year Government Bond Tullett Prebon: TMBMKIT-02Y 0.98% +0.21 (+27.17%)

Volume 0
Open 0.76%
High 1.00%
Low 0.76%
P/E Ratio 0
Div Yield 0
Market Cap N/A

FTSE 100 Index FTSE Indices: UKX 7,686.80 -54.49 (-0.70%)

Volume 0
Open 7,741
High 7,744
Low 7,687
P/E Ratio 0
Div Yield 0
Market Cap N/A

British Pound Tullett Prebon: GBPUSD 1.3401 +0.0089 (+0.6686%)

Volume 0
Open 1.33
High 1.34
Low 1.33
P/E Ratio 0
Div Yield 0
Market Cap N/A

DAX XETRA-ETF: DAX 12,787.13 +16.38 (+0.13%)

Volume 0
Open 12,766
High 12,925
Low 12,753
P/E Ratio 0
Div Yield 0
Market Cap N/A

CAC 40 Index France: Euronext Paris: PX1 5,460.95 -11.96 (-0.22%)

Volume 0
Open 5,465
High 5,513
Low 5,461
P/E Ratio 0
Div Yield 0
Market Cap N/A

IBEX 35 Index Spain: Madrid: IBEX 9,686.40 -63.90 (-0.66%)

Volume 183.4M
Open 9,731
High 9,813
Low 9,686
P/E Ratio 0
Div Yield 0
Market Cap N/A

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