Italy bans stock short-selling as market plunges

Consob said on its web site that the ban would apply for the entire week.

Milan's main stock index, the FTSE-MIB, was down 2.8 percent by midday after being down by more than 5 percent in the morning.

Trading in some banks and financial groups was halted temporarily because of excessive losses as fears over an escalation in Europe's debt crisis gripped markets once again.

Investors worry that Spain could need a sovereign bailout as its borrowing rates remain prohibitively high. A bailout for Spain would stretch Europe's financial resources. The continent's bailout fund would have no more money to help Italy.

Banks UniCredit and Intesa Sanpaolo were among the six banks suspended from trading for sharp losses. Insurance company Generali also saw its shares suspended.

When trading resumed, Unicredit shares were trading down 4 percent at €2.338, while Intesa shares were down 6.99 percent to €0.872.

Meanwhile, the Italian government's borrowing rates rose on concern it might need financial rescue. The 10-year bond yield rose 0.26 percentage points to 6.33 percent.

In a short sale, investors sell stock that they do not own, betting that they can buy it back at a lower price. The investor seeks a profit by betting that the price of certain shares will fall.

Short-selling of shares has been blamed for driving down markets during the financial crisis and several European regulators have in the past imposed temporary bans on the practice. Italy in February let expire a ban that had been imposed the previous summer.