* Euro at 11-month low on political turmoil in Italy
* Stocks slump in U.S., Europe, Asia
* Short-term Italian bond yields sees biggest spike in 26 years Markets fear a snap Italian election will be referendum on EU
* Yen, Swiss franc, Treasuries dominate safe-haven rally
By Trevor Hunnicutt
NEW YORK, May 29 (Reuters) - A spiralling Italian political crisis provoked a global stock market selloff on Tuesday, cut the euro cut to an 11-month low and spiked short-term borrowing costs for the government in Rome.
Investors fear that repeat elections - which now seem inevitable in the euro zone's third-largest economy - may become a de-facto referendum on Italian membership of the currency bloc and the country's role in the European Union. U.S. Treasury bonds rallied, as did the Japanese yen and the U.S. dollar, but gold was nearly unchanged with spot prices at $1,301.94 an ounce early in U.S. trading after earlier gains.
"As the slide continues, you ask where is the end," said Saxo Bank's head of FX strategy, John Hardy. Global contagion is a risk, he said, with the benchmark U.S. S&P 500 stocks index .SPX breaching key "technical" support levels.
Hardy recalled a promise made in 2012 by European Central Bank President Mario Draghi to keep the euro intact.
"If this continues for another couple of sessions, I think you will have to see some official (European) response. A 'whatever it takes' kind of moment," he said.
The Dow Jones Industrial Average .DJI fell 276.17 points, or 1.12 percent, to 24,476.92, the S&P 500 .SPX lost 22.03 points, or 0.81 percent, to 2,699.3 and the Nasdaq Composite .IXIC dropped 18.84 points, or 0.25 percent, to 7,415.02. Italian bond yields - a sensitive gauge of political risk - soared as much as 150 basis points IT2YT=RR to their highest since 2013 in their biggest move in 26 years euro dropped towards $1.15 EUR=EBS for the first time this year, down 0.8 percent on the day. Against the Swiss franc EURCHF= , it fell to 1.15 francs. in Milan slid 2.3 percent on the main index .FTMIB after a 2.1 percent fall on Monday. Bank shares .FTIT8300 slumped more than 4 percent after losing the same amount in the previous session, bruised by the sell-off in government bonds, a core part of bank portfolios. to the uncertainty in Europe, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday. bond-yield spread with Germany also went to its widest this year at 132 bps ES10YT=RR . Madrid's IBEX bourse .IBEX was down 2.2 percent flinched, too. Japan's Nikkei .N225 slipped 0.6 percent. Chinese and Hong Kong shares ended 0.6 to 0.7 percent in the red. dollar was up against almost all major currencies except the safe-haven Japanese yen JPY= . U.S. currency is heading for its best month since late 2015 .DXY - a move that is hurting many emerging market countries that borrow in dollars.
"The biggest contributor is fear of a euro zone crisis, and the spillover from that into demand for safe-haven currencies," said Koon Chow, an FX strategist at UBP.
PLAYING IT SAFE
Away from Europe, the focus was on the on-again, off-again U.S.-North Korean summit and the U.S.-China trade relationship.
An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday, Japanese public broadcaster NHK reported, and the White House said a "pre-advance" team was travelling to the city to meet the North Koreans reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead even though President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.
Italian Prime Minister-designate Carlo Cottarelli will see the President Sergio Mattarella at 4:30 p.m. (1430 GMT), the president's office said in a statement.
Mattarella effectively vetoed a coalition government of the anti-establishment 5-Star Movement and League party at the weekend. He has asked Cottarelli to form a stop-gap government to lead the country to early elections instead. Cottarelli is expected to announce his cabinet after the meeting.
OIL UNDER PRESSURE
Oil struggled to rebound to the near-four-year highs it set earlier in the month. Crude is under pressure from expectations that Saudi Arabia and Russia would pump more oil, even as U.S. output rises.
That has pushed the spread between Brent and U.S. crude CL-LCO1=R to nearly $9 a barrel, its widest since March 2015 because of the depressed price of U.S. crude compared with Brent. crude CLcv1 fell 1.87 percent to $66.61 per barrel and Brent LCOcv1 was last at $75.42, up 0.13 percent on the day.
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http://reut.rs/2sSBRiD Crude oil prices
https://reut.rs/2JeW2lI Italy's political strife pushes up borrowing costs
https://reut.rs/2JhL1Ap
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