GLOBAL MARKETS-Italian bond yields rise, jitters weigh on euro
* Berlusconi wins vote, but loses majority
* Italian 10-year yields at 14-year high
By Rodrigo Campos
NEW YORK, Nov 8 (Reuters) - Yields on Italian bonds hit a 14-year high on Tuesday as investors' fears mounted that Italy, the euro zone's third largest economy, could be facing a debt crisis similar to that of Greece.
Italy's embattled leader, Silvio Berlusconi, managed to squeeze out a victory in Parliament on budget policy, but he lost his parliamentary majority and faced the possibility of being forced to resign.
The rise in the yield on Italian bonds, a signal of investor fears over risk, was approaching levels seen in government bonds of Portugal and Ireland when those countries were forced to seek bailouts.
Global shares and the euro were mostly flat, and U.S. Treasury debt prices rose as investors sought safety.
Italian 10-year bond yields touched a 14-year high of 6.76 percent, edging closer to a 7 percent level beyond which funding costs are deemed to be unsustainable.
"We are getting dangerously close to the 7 percent level in Italian bonds, which is the magic number," said Kathy Lien, director of currency research at GFT Forex in Jersey City, New Jersey.
"If Italy's 10-year bond yield hits 7 percent, the speculation of Italy becoming the next Greece would escalate significantly."
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said Italy's budget vote "did little to alleviate market uncertainty."
"Even with a leadership change in Rome," he said, "the fact remains that Italian bond yields are at unsustainable levels and ultimately Italy will continue to be a key liability for the euro."
The euro edged up less than 0.1 percent versus the U.S. dollar, after having been up close to 0.4 percent before the vote.
Focus has shifted in the past days from Greece's weak economy and finances to the swelling Italian deficit. With borrowing costs soaring and 1.9 trillion euros in public debt, the country, as opposed to Greece, is too large to bail out.
Berlusconi's exit could ease the passage of unpopular austerity measures needed to reduce debt and lower Italian government bond yields.
The FTSEurofirst index of European stocks unofficially closed 1.1 percent higher and the MSCI world equity index was up 0.1 percent.
In New York, the Dow Jones industrial average dropped 60.62 points, or 0.50 percent, to 12,007.77. The S&P 500 fell 4.73 points, or 0.38 percent, to 1,256.39. The Nasdaq Composite lost 9.54 points, or 0.35 percent, to 2,685.71.
The benchmark 10-year U.S. Treasury note was up 3/32, yielding 2 percent.