stock exchange monitor in Milan -  AP - 10112011
A man checks a stock exchange monitor in Milan on Wednesday. Photo by AP
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Israeli shares swung violently down in a rout led by bank stocks, as the world markets failed to be charmed by Italian Prime Minister Silvio Berlusconi's reluctant sidle toward the exit. Moving like precision swimmers, the leading indexes on the Israeli and European exchanges all began the day with gains that were lost early on, from which time all the benchmark indexes slid hard until noon, when the slope flattened.

Yet again though Israeli shares stood out, this time losing about 3% of their value on thin trading, while the losses in Europe were milder, albeit decisive. While the Israeli benchmark TA-25 index fell 3% to 1,093 points, German and French shares lost something over 2% and British shares lost 2%. Italian shares lost 4% and counting.

Over in Italy, borrowing costs surged after Prime Minister Silvio Berlusconi's promise to resign failed to raise optimism about Italy's ability to deliver on long-promised economic reforms. Italian 10-year bond yields shot into junk territory, rising above the 7% level that is widely deemed unsustainable, reflecting investors' concerns that they may not get their money back and prompting German Chancellor Angela Merkel to issue a call to arms. She said Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly, warning the rest of the world would not wait. No wonder shares pulled back on weedy turnover. The fact that the European Central Bank set about aggressively buying Italian government bonds did not charm.

As yields on Italian bonds leaped, worries that the debt crisis could be infiltrating the core of the euro zone were reflected in the spread of 10-year French government bonds over their German equivalent rising to a euro-era high of around 140 basis points.

Is Italy on the road to default? That depends on the European Central Bank heavily buying Italian government bonds, which is equivalent to printing money, says Ori Greenfeld, macro economist at Psagot. Until now Berlin and the ECB had rejected such indulgences: The time has come, he says.

Israeli bank shares led the slide south, losing about 5%. Leumi fell 5.3%, Hapoalim fell 5.8%, Mizrahi-Tefahot lost 3% and Discount fell 4.4%. Why? For one thing, analysts have been frowning that the big banks will be reporting feeble results for the third quarter, and for another, some are exposed to Italian debt. In its second-quarter financial statement Leumi had disclosed that its Italian exposure is NIS 775 million. Beinleumi's exposure is a wee NIS 83 million. The others don't break down their government bond investments by country.

Delek Group shares lost 5.4% despite success in raising NIS 261 million on Wednesday, in a private placement of bonds. Most of the money came from insurance companies Migdal and Menorah-Mivtachim (which Delek Group doesn't own; it owns the Phoenix insurance company ).

Cellcom shares lost 2.2% after IBI predicted that its third-quarter results, due next week, will be soggy, as the cellular companies continue to manifest the newly assertive steps by the regulators and thanks to the advent of competition.

Amdocs fell 4.3% after publishing its results for the third quarter. To see them, visit Page 8.

With reporting by Reuters.