Italy's stock market plunged Monday and the country's borrowing costs jumped as the unexpected resignation of Italian Prime Minister Mario Monti added a new uncertainty to the eurozone debt crisis.

The country's main stock exchange index (the FTSE MIB) fell nearly three percent, while the interest rate on the Rome government's 10-year bond increased a third of a percentage point, its fastest jump since August.

Mr. Monti, who has led the Italian government for a year, announced Saturday that he will resign when parliament passes next year's budget, likely leading to new elections in February, several weeks earlier than planned. Polls show the center-left Democratic Party led by Pier Luigi Bersani holds a strong lead and could form the next government.

The political uncertainty was sparked when former prime minister Silvio Berlusconi announced his conservative party was withdrawing support of the Monti government. Mr. Monti has won wide support from other European leaders as his government moved to adopt austerity measures to rein in Italy's debt.

)

Several European leaders said the Italian government needs to keep to its pledges to cut spending, and Bersani told the Wall Street Journal his party would “respect the very stringent commitments” Rome has already made.

Mr. Berlusconi, whose last government was marked by financial and sexual scandals, said he would seek another term as the Italian leader. Financial analyst Robert Halver of the Baader Bank said international markets are worried about Mr. Berlusconi's possible return to power.

“The markets are shocked at the prospect that Berlusconi will become prime minister again. He is responsible for the crisis in Italy and we don't need a resurrection of that. He should enjoy his pension and Mr. Monti should run again. The reforms have to go on its about bella Italia not bello Berlusconi.”