European stocks close:

European stocks dropped for the third day in four as Italian bond yields surged to their highest since the introduction of the euro and Italy’s credit-default swaps jumped to a record.

Italian bonds tumbled, pushing two-, five-, 10- and 30-year yields to euro-era records. The 10-year note yield climbed to 7.25 percent.

Berlusconi last night said he will step down as soon as parliament passes austerity measures. He had pledged to cut spending in a bid to convince investors that Italy can manage the euro area’s second-largest debt. The government has yet to write the austerity bill, said Mario Baldassarri, head of the Senate Finance Committee.

In Greece, Prime Minister George Papandreou’s talks on forming an interim government to avert the economy’s collapse dragged into a third day as a near-agreement with the biggest opposition party stalled on European Union demands for written commitments. The makeup of Greece’s new government is to be announced today, the Associated Press reported, citing a government official who it did not name.

China’s inflation slowed by the most in almost three years, giving officials more room to support growth as industrial production cools, a report today showed. Consumer prices rose 5.5 percent in October from a year earlier, the statistics bureau said. The measure declined 0.6 percentage points from September, its biggest slide since February 2009.

National benchmark indexes fell in all of the 18 western European markets. France’s CAC 40 Index and Germany’s DAX Index retreated 2.2 percent. The U.K.’s FTSE 100 Index lost 1.9 percent.

HSBC Holdings Plc, Europe’s largest bank, retreated 5.8. The bank said pretax profit at its investment bank led by Samir Assaf fell to about $1 billion in the third quarter from a year-earlier. Bad-loan provisions increased to $3.89 billion from $3.15 billion, mainly related to its U.S. unit, the bank said.

Bank shares fell 3.7 percent, among the biggest drops of the 19 industry groups in the Stoxx 600, as Greek and Italian lenders slid. Piraeus Bank SA retreated 6.3 percent to 25.3 euro cents. Alpha Bank AE sank 9 percent to 1.11 euros.

Dexia SA, the lender being broken up after running out of short-term funding, plunged 11 percent to 37.2 euro cents. The bank said shareholder equity shrank 84 percent after the nationalization of its Belgian bank unit and declines in the value of government bond holdings.

Mediaset SpA, the broadcaster controlled by Berlusconi, tumbled 12 percent to 2.21 euros after the premier offered to resign once parliament approves stability measures.

Admiral Group sank 26 percent to 887.5 pence for the biggest decline on the Stoxx 600 and the shares’ largest retreat since 2004. The U.K. car insurer that owns the confused.com website said full-year pretax profit will be toward the lower end of analysts’ estimates.

Deutsche Post, Europe’s biggest postal service, rallied 3.8 percent to 11.10 euros. The company lifted its full-year forecast as increasing express shipments in Asia and parcel volume from Internet retailing boosted third-quarter earnings. Earnings before interest and taxes in 2011 will exceed 2.4 billion euros, the company said. That compared with an earlier prediction for Ebit at the upper end of a 2.2 billion-euro to 2.4 billion-euro range.