BBC News - Asian stocks fall on concerns over Italy's debt crisis

Japan's Nikkei index fell 2.9%, South Korea's Kospi shed 3.8% while Hong Kong's Hang Seng dropped 4.4%.

The falls in Asia followed losses in the US markets.

The cost of borrowing on Italian government bonds jumped to 7% on Wednesday, a level considered unsustainable by economists.

The high interest rate means that if Italy were to borrow money today, with the aim of paying it back in 10 years, it would have to pay an interest of 7%.

However, Italy has a low growth rate, which means it would struggle to repay its debt at these rates.

Analysts said some actions needed to be taken in Italy in order to calm markets.

"Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy," said Frederic Neumann from HSBC in Hong Kong.

"We need radical solutions at this point to backstop the markets."

Market Movers

Shares of banks in both Japan and Australia were hit particularly hard. In Tokyo, Sumitomo Mitsui Financial Group tumbled 5.3%, while Mizuho Financial group fell 3.8%.

In Sydney, Westpac Banking Corporation dropped 3.6%, to its lowest level in a month.

Economists are concerned that the global banking system could still be impacted, regardless of whether there is a resolution to the eurozone crisis.

"Whatever they come up with, it doesn't avoid a European recession," said Su-Lin Ong at RBC Capital Markets.

"Increasingly, there is a risk that it spills into the banking system and becomes an issue of credit, and the lifeline of economies freezes up again," she said.

Last month, in a bid to ease concerns about the Greek debt crisis, eurozone leaders asked banks to raise more capital to protect themselves against any losses resulting from future defaults by Greece.

At the same time, banks also accepted a 50% loss on the money they had lent to Greece.

The fear is that if Italy's debt crisis worsens, similar measures may have to be taken by banks that are exposed its debt.

Euro weakens

Meanwhile, the euro continued to weaken on Thursday, touching a one month low of $1.35 against the US dollar, and a two-week low of 105.1 yen against the Japanese currency.

As uncertainty about the outcome of the eurozone debt crisis continues, many investors have been ditching the euro and euro-based assets.

Analysts warned the euro may fall further in coming sessions as investors turn to what they see as safer assets.

They said that authorities needed to take decisive action in order to restore confidence in the markets.

"The markets were basically in a panic yesterday and the only thing that can give the euro at least a temporary respite is quick action from the European Central Bank to lower Italian yields," said Koji Fukaya at Credit Suisse.