World stocks hammered to three-year low on eurozone fears

World stocks were down to a three year low and the euro fell across the board as top-rated government bonds strengthened today on mounting fears of an imminent break-up of the euro zone ahead of a key debt sale in Italy.

Italy, seems to have replaced Greece as the foremost source  of investor concern, and is expected to offer €5 billion of short-term Treasury bills, maturing November 2012 in a key test to Rome's ability to fund itself.

The two-year-old euro zone debt crisis has stoked fears of a split in the euro zone, which cannot fund a bailout of Italy.

Meanwhile, former European Commissioner Mario Monti today emerged as favourite to replace Silvio Berlusconi and form a new government to avoid a run on Italian bonds that was endangering the entire euro zone.

Monti, an internationally respected figure, has been talked about in the markets as the most suitable figure to lead a national unity government that would urgently push through painful austerity measures. In a key development today, Berlusconi's ruling PDL party appeared no longer insistent on early elections as the way out of a deep political crisis. It said it was considering the option of a Monti-led government.

Monti, 68, has long been cited as the most likely leader if an emergency executive could emerge and gain support across parties. Governments of the kind have had success in previous crises.