Worries that Europe's debt crisis is about to flare up again in the wake of political uncertainty in Italy weighed heavily on stock markets on Tuesday and sent the euro skidding down to 2018 lows against the dollar. Wall Street looked set for gains, with the future for the S&P 500 up 0.4 percent and the Dow future contract gaining 0.5 percent.
In the eurozone, Frankfurt's DAX 30 gained 0.1 percent to 12,796.16 points and the Paris CAC 40 won 0.3 percent to 5,440.95. The parties will likely keep negotiating, and contentious talks between the US and China are due to resume during the weekend.
Chinese shares also headed south, with the Shanghai Composite index down 1.4 percent.
The euro might survive an Italian exit, but it would "put Italy, the euro area economy and the European Union in deep distress".More news: What the Media Overlooked in Trey Gowdy Interview
ITALY: 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.
"At these levels, I think the dollar is almost priced to perfection and we think the euro should see a rebound from later this year", said Paul Baird, head of fixed income at Newton Asset Management, a subsidiary of BNY Mellon which manages $49.8 billion in assets globally.
Bank stocks declined along with the falling bond yields, which force interest rates on loans lower. Investors had feared that a repeat vote could become a proxy referendum on Italy's euro membership.
The dollar rose against most major currencies except the Canadian Dollar.More news: Amazon blocks Australia from global sites over tax
The pan-European STOXX 600 fell 0.8pc, with banks the worst-performing. Earlier it fell to $1.1510, its lowest level since last July before recovering to trade 0.5 percent down on the day at $1.1565. A capitalisation-weighted index of euro area banks fell as much as 5.2% to its lowest since December 2016, while Deutsche Bank AG dropped by 3.3% to the lowest since September 2016. Most Southeast Asian markets were closed for holidays. The yield on the 10-year Treasury note fell to 2.87 percent from 2.93 percent late Friday. Italy's economic condition has often been called 'too big to fail, ' which puts added stress on the European Central Bank which holds 15 percent of Italy's bonds.
Safe-haven U.S. Treasury bonds and German bunds rallied, as did the Japanese yen, the U.S. dollar and gold.
ENERGY: Benchmark U.S. crude fell 1.1 percent to $67.13 a barrel in NY. Oil prices have slumped in the last week following reports that OPEC countries and Russian Federation could start pumping more oil soon.
Elsewhere Spanish equities rose 1.8 percent after Spanish socialist Pedro Sanchez was catapulted to power, taking over as prime minister from veteran conservative Mariano Rajoy, who lost a no-confidence vote in the wake of a corruption scandal. Hong Kong's Hang Seng index plunged 1 percent. Brent crude, used to price global oils, shed 38 cents to $75.11 a barrel in London.More news: Trump says Mexico will eventually pay for border wall