LONDON - European stock markets and the euro extended losses Tuesday as political uncertainty in Italy stoked fresh fears about the eurozone. Having already slumped Monday, Italy's FTSE MIB stocks index plunged again. Madrid's IBEX 35 also dropped, on Spain's own political crisis."The fear of another election and political uncertainty in Italy is driving significant losses throughout Europe," said Joshua Mahony, market analyst at IG traders.

"It comes as no surprise that we are seeing Italian markets suffer heavily, with the FTSE MIB hitting a 10-month low, and the two-year (Italian) bond yield topping two percent for the first time since 2013."

Italy's 10-year bond yields meanwhile surged over 300 basis points higher than Germany's early in the session, reflecting investor worry over the prospect of a fresh eurozone crisis. The Italy-Germany spread stood at around 266 basis points in mid-afternoon. The euro meanwhile struck the lowest level against the dollar since last July.

Italy, the eurozone's third biggest economy after Germany and France, has been plunged into crisis with President Sergio Mattarella at the weekend vetoing the nomination of a fierce eurosceptic as economy minister.

The move led the prime minister-designate to step down, scuppering the bid by the anti-establishment Five Star Movement and the far-right League to form a government.

- 'Heightened uncertainty' -

Mattarella then named Carlo Cottarelli, a pro-austerity economist formerly with the International Monetary Fund, to lead a technocrat government, with another election likely in the autumn.

The chaotic developments have spooked investors, who fear another election could see a better result for the essentially anti-EU parties.

"We may now be in for an extended period of heightened uncertainty ahead of fresh elections," Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, said in a note to clients.

Adding to the selling pressure was a brewing crisis in Spain, where Prime Minister Mariano Rajoy faces a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.

Wall Street opened ... as traders returned to their desks after a long holiday weekend.

Earlier Tuesday, Asian stock markets closed mostly lower, with traders keeping an eye on oil prices, which have tanked since Saudi Arabia and Russia indicated they could raise output after abiding by a self-imposed cap for two years.

The comments come as supply worries increase, with major producer Venezuela hit by economic uncertainty, Iran facing painful export sanctions and demand seen picking up.

Brent crude manage to rebound on Tuesday, while WTI slumped once more.