The Milan Bourse's benchmark S&P/MIB Index, fell 6.65 per cent to 20,415 at 10:20 am (820 GMT) on Friday.

The plunge came after relatively contained losses on Thursday when the market, and in particular banking sector shares, appeared to respond positively to government measures to provide "last-resort" aid to lending institutions unable to raise capital.

But on Friday, the worst performers were Italy's two largest banks, Intesa SanPaolo, which lost 12.46 per cent and UniCredit, which saw its share price down by 12.27 per cent.