Stock markets and bonds sell off across Europe as investors alarmed by spiralling unrest in France

Stock markets and government bonds have sold off across Europe after France was gripped by rioting and looting over the weekend.

With unrest also spilling into Italy, trading screens turned red in Paris and Milan – while shares in London and Frankfurt were also feeling the heat.

France’s Cac 40 slumped by 1.5 per cent while Italy’s FTSE MIB suffered a 1.9pc fall. In Britain, the FTSE 100 was down by more than 145 points, or 1.3 per cent, in afternoon trading, while Germany’s Dax lost 1.5 per cent.

A bond market sell-off saw France’s ten-year borrowing costs rise sharply from 4.78 per cent on Friday to just below 4.91 per cent.

Ten-year yields in Italy jumped from 4.48 per cent to 4.58 per cent.

Britain – already paying the highest borrowing costs in the G7 group of advanced nations – was not immune from the bonds carnage. Yields on ten-year UK bonds, known as gilts, spiked from less than 5.38 per cent to nearly 5.44 per cent.

But the turmoil on the continent did benefit the pound, which climbed to nearly €1.19, the highest level since May last year.

Investors were already becoming increasingly anxious about France’s staggering debt pile and political paralysis over the government's budget plan, which aimed to make limited progress to tackle the debt.

With an election months away threatening to put extremists of right or left in charge, the prospect of significant repairs to public finances taking place looks slim.

Scenes of France’s major cities on fire and violent clashes on the streets – amid anger over the state of public services and the rising cost of living – added to the market jitters.

French prime minister Sebastien Lecornu vowed to restore order, blaming far-Left groups for the unrest, which comes after weeks of student protests.

President Emmanuel Macron turned down his interior minister Laurent Nunez’s offer to resign.

‘Storm clouds are gathering across the Channel,’ said Maike Currie of retirement market firm PensionBee. ‘Political unrest and fiscal uncertainty in France are rattling bond markets, with nervousness spilling into European equities.

‘It’s a stark reminder that markets have little patience for governments without a credible plan to manage their finances.’

Neil Wilson, UK investor strategist at Saxo Bank, said the unrest ‘underscores how hard it will be for a government to enact the kind of spending restraint required to get the deficit down’.