| Stocks in London were dragged lower by the heavy losses seen on the Continent in the wake of the political uncertainty in Italy and Spain, with fresh elections in the former now considered likely by analysts for after August. The FTSE 100 finished down 1.26% to 7,632.64, with investor sentiment quite wobbly ahead of fresh elections in Italy and as Spanish Prime Minister Mariano Rajoy faces a vote of confidence in his leadership at the end of week. In currency markets, sterling was down 0.4% against the dollar at 1.32574, alongside a surge in longer-term Gilt prices as investors sought out the refuge of alternative assets to Italian ones. Meanwhile, the Europeam single currency was trading at a six-and-a-half month low against the greenback, down 0.7% at 1.1550. Fresh elections are now expected in Italy after President Sergio Matarella intervened on Sunday to block the populist coalition partners from installing a euro-sceptic as their choice for finance minister. Far-right League leader Matteo Salvini could have opted to name a second, more orthodox, candidate, but did not do so, a move that some believed was motivated by his desire for fresh elections, given recent gains by his party in polls. However, it was believed Salvini's move might backfire given that Italians still support their country's membership of the euro. In any case, and most important of all, Mattarella's decision was expected to put the question of euro membership squarely on the political agenda. News of events over the bank holiday sent Italian government bonds plummeting on Tuesday. In turn, US, UK and German debt was sought out as a relative safe haven. Meanwhile, in Spain, analysts were focused on a no confidence vote against Prime Minister Mariano Rajoy scheduled for Friday, after a Spanish court handed down a ruling on a corruption case involving members of the ruling Partido Popular during the previous week. Joshua Mahony, market analyst at IG, said: "Italian political instability is very much front and centre of investor concern today, with stock markets across Europe in the red. "[...] With the populist parties making great strides off the back of disenfranchised and dissatisfied Italians who wants a change from the status quo, we are likely to see any future election drive further gains for the Five-star and League parties, thus heightening the chance of a more radical upheaval. 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 bond yield topping 2% for the first time since 2013." In UK corporate news, RBS paced the decline on the top-flight index following reports that the government could sell off a hefty part of its 70% stake in the bank this week. Dixons Carphone shares tumbled after the company said profits were down 24% in the past year and will drop more than 21% in the coming year as new chief executive Alex Baldock sees "plenty of hard work" ahead for the electricals retailer. Vedanta was in the red - but well off earlier lows - as it was ordered to permanently close its Tuticorin copper smelter in India, where anti-expansion protestors were killed by police earlier in May. GlaxoSmithKline slipped after it and Innoviva submitted a regulatory application to the Japanese Ministry of Health, Labour and Welfare for their single inhaler triple therapy for the treatment of patients with chronic obstructive pulmonary disease or COPD. Old Mutual was in the red after saying it will proceed with the listing of its asset management business Quilter PLC following shareholder approval for the managed separation. Standard Life fell as it said it plans to return £1.75bn to its shareholders following the sale of its UK and European insurance business to Phoenix Group. Rolls-Royce retreated as it unveiled a new range of engines for aviation business, purpose built for Bombardier's latest jets. On the upside, precious metals miners Fresnillo and Randgold Resources shone in risk-averse trading, while Smiths Group rallied after it confirmed that it is in very early stage discussions about a potential combination of its medical division with Nasdaq-listed ICU Medial. Serviced office provider IWG was also on the front foot as Prime Opportunities Investment said it had made a cash offer for the company that was rejected. In broker note action, IAG was upgraded to 'buy' at AlphaValue, while Fresnillo was lifted to 'outperform' at BMO. Ocado was cut to 'equal-weight' at Morgan Stanley and Workspace was downgraded to 'hold' at Deutsche Bank. | 
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