Italian turmoil hits global markets, sends stocks plunging

NEW YORK — Stocks in the U.S. and Europe sank Tuesday following political turmoil in Italy, which stoked fears of instability in the euro bloc.

Investors sold stocks, and prices for U.S. government bonds surged as investors shifted money into lower-risk investments. Bond yields dropped, and with them, interest rates on mortgages and other kinds of loans. Banks plunged as Wall Street expected they would earn thinner profits.

Major exporters like technology and industrial companies and big drug and medical device makers also skidded. Those companies depend on strong sales outside the U.S.

Investors dumped Italian government bonds, driving borrowing costs sharply higher for that country and rekindling fears of more financial strain for Europe’s third-largest economy. They bought German and British government bonds instead, which are seen as more stable.

The political upheaval in Italy is likely to lead to new elections in the next few months, and investors are interpreting the new vote as a referendum and that Italy could move closer to abandoning the currency if populist parties win the election.

It’s not clear if that would happen, but if it did, it would have major implications for the European financial system and its economy.

New jitters about the stability of the euro sent the currency’s value against the dollar to its lowest level in almost a year. The euro sank to $1.1531, its lowest since July, from $1.1669.