Silvio Berlusconi has ruled out an alliance with former Italian prime minister Mario Monti and said the election results reflected popular discontent with austerity measures.
Speaking in a TV interview after the Italian elections created a political stalemate, Berlusconi said it was time to reflect on the results.
But he also added that a return to polls wouldn't be "useful".
European shares dropped on Tuesday morning and Italian banking stocks were halted limit-down initially. Once they opened, Intesa Sanpaolo's shares dropped 10 percent, Mediobanca shares were down 8 percent.
The FTSEMIB (FTSE International: .FTMIB-GB) was down 4 percent in morning trading.
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Italy's 10-year bond yields rose to 4.87 percent from 4.448 percent at the close on Monday. The spread between safe-haven German bunds and Italian bonds jumped 57 basis points to 336 basis points.
Italy also went ahead with a 6-month T-bill auction, selling 8.75 billion euros, but the yields jumped to the highest level since October 2012.
The average yield at the auction was 1.237 percent, up from 0.731 percent at the end of January.
Reuters reported that Berlusconi had also hinted that he was open to an alliance with the center-left parties.
"Italy cannot be left ungoverned, we have to reflect," Reuters quoted Berlusconi as saying.
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Italy's Prime Minister Mario Monti is to meet the central bank governor and the country's economy minister, around mid-day to discuss the crisis, Reuters reported.
In addition, Italy's market regulator said it was monitoring exchanges and would use all instruments to calm volatility.
The election results gave the center-left coalition led by Pier Luigi Bersani, a slim majority in the lower house. But no party won enough seats in the upper house, the Senate, where 158 seats are needed to govern.
Bersani's alliance won 119 Senate seats while Berlusconi's center-right took 117 seats, according to Reuters.
The anti-austerity and anti-Europe protest movement led by comedian Beppe Grillo won 25.5 percent of the vote for the lower house, just edging out Bernani's Democratic Party, which won 25.4 percent.
Most analysts however said the crisis, while severe, was likely to be kept under check by the European Central Bank [ECB], which promised last year to use a new bond-buying program to rescue any country in need of aid.
"The fallout in the markets, while already significant, is very unlikely to be as severe as previous bouts of market turmoil because of the reassurance provided by the ECB's fiscal backstop," Nicholas Spiro of Spiro Sovereign Strategy wrote in a note to clients.
"However, the anti-establishment and anti-austerity backlash in Italy presents the biggest challenge to the eurozone's austerity-focused policies since the crisis erupted in 2010."
- Reuters contributed to this report.
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