Stock markets gain after Italy austerity vote

Stock markets have risen after Italy's senate voted to adopt a package of austerity measures.

Shares in the US and Europe closed higher, while the cost of borrowing facing Italy retreated, having reached a record earlier in the week.

The Italian senate's vote begins a process that should see Italian Prime Minister Silvio Berlusconi quit.

Investors are hopeful that a new government will take the steps necessary to calm markets.

The US Dow Jones share index closed 2.1% higher. German stocks ended 3.2% up and in the UK the FTSE 100 share index climbed 1.8%.

Meanwhile, the new Greek prime minister pledged to keep the country in the euro.

Growth fears

During a dramatic week, Mr Berlusconi on Tuesday said that he planned to resign after failing to win an absolute majority in the lower house of parliament in a vote on the budget.

The following day, the yield on Italian 10-year debt shot up to a record of more than 7% - which is widely viewed as unsustainable and is same rate at which Portugal, Greece and the Irish Republic were forced to seek a bailout.

On Friday, the yield on the benchmark Italian 10-year bond had fallen back to about 6.41%.

Following the Italian senate vote, the lower house will vote on new austerity measures at the weekend and this should pave the way for Mr Berlusconi to resign.

Italy has to roll over more than 360bn euros (£309bn) of debt in 2012.

But all this came as the European Union on Thursday said it had drastically cut its growth forecast for the eurozone in 2012, from 1.8% down to just 0.5%.

"Growth has stalled in Europe and there is a risk of a new recession," said European Commissioner Olli Rehn.

French debt woes

In a sign of how strained European finances have become, Standard & Poor's accidentally released a message on Thursday saying that it had downgraded French debt from its top AAA rating.

S&P said it was investigating what had gone wrong and stressed that France still had an AAA rating.

However, S&P's error came on the day that the difference between the yield of French and German bonds hit a record high.

On Friday, yields on German 10-year bonds - the safest in Europe - were 1.85%, while the yield on French debt was 3.37%.

Meanwhile, Greece, which has been bailed out twice and is undergoing painful austerity cuts, has a new Prime Minister, Lucas Papademos.

Mr Papademos, a former European Central Bank vice-president, was named on Thursday after several days of talks.

He said his first priorities would be to ratify the 130bn-euro rescue package agreed at an EU summit last month.