Stocks hammered by fears of broader crisis in Italy

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Investors dumped their holdings of Italian government bonds, leads to a global stock market sell-off, after fears that Italy was headed into deeper crisis.

The cost of borrowing for Italy drove up 7 percent, a level that many economists see as unsustainable and a number that accelerated bailouts for Greece, Ireland, and Portugal, according to the New York Times.

"Wednesday's surge in Italian government bond yields has catapulted the euro zone crisis into a dangerous new phase," said John Higgens, a senior markets economist with Capital Economics, in a research note, reports the New York Times.

The Dow Jones industrial average tumbled 389 points Wednesday, but the fear factor was not only contained to the U.S. stock market. The euro slumped more than 2 percent after European markets also sold off, reports CNN.

Italy's bond rates are triggering intense market anxiety, which investors say is a result of lack of investor confidence.

"This is a crisis of confidence, not of fundamentals," said Mark McCormick, currency strategist at Brown Brothers Harriman, to CNN. "Italy's debt level is sustainable, but it needs to implement policies that will support economic growth."

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