The plunge in Italian markets overshadowed policy makers'efforts to fix Greek finances as the euro-region's debt crisisinfected Europe's largest borrower.

Italian bonds fell for a seventh day and the nation's borrowingcosts jumped by more than half at an auction of 6.75 billion euros($9.4 billion) of bills today. Stocks pared declines after fallingto a two-year low. Warnings by Moody's Investors Service andStandard & Poor's over Italy's ability to trim debt, coupledwith infighting in Silvio Berlusconi's government over abudget-cutting plan, fueled the sell-off.

“Italy coming under severe market pressure, being thethird-largest economy and a founding member of the EU, signals thatthe sovereign and banking crisis has reached a deeply systemicphase,” Vladimir Pillonca, an economist at Societe Generale SA inLondon, wrote in a note to investors today.