Seoul shares lost 4.94 percent to 1,813.25 Thursday on deepening woes over Europe’s debt crisis as soaring borrowing costs in Italy renewed fears that the region’s currency union may be breaking up.

The benchmark KOSPI opened sharply lower, with losses led by bank and oil refiners, tracking worsening performance of market indices across Asia and the U.S. The local currency lost 1.5 percent to close at 1,134.2 won against the U.S. dollar.

“It wasn’t a surprise that investors cut their holdings, especially of bank shares. Italy’s bond costs soaring over 7 percent spooked fears about the euro’s future,” Lee Chang-wook, an analyst at Taurus Securities said.

Italian debt yields jumped as high as 7.4 percent this week, raising concerns that the Italian governments may not have enough money to repay their debt in full.

Italy is the world’s third-largest bond market with over $2.6 trillion in outstanding sovereign debt, after the U.S. and Japan.

Losses were heavy for the four local financial holding companies ― Shinhan, Woori, KB and Hana. Woori Finance Holdings fell 5.31 percent to 9,800, Shinhan Finance Holdings shares fell 6.23 percent to 39,150 won. Shares of KB Financial Holdings and Hana Financial Holdings declined 6.45 percent and 6.23 percent each to close at 38,450 won and 369,000 won, respectively. Market bellwether Samsung Electronics fell 3.05 percent to 956,000 won a share.

“The outflow from Seoul stocks would be limited and won’t be as big as the withdrawal the market experienced with the Greek debt saga. But Italy’s soaring debt heightened external risks for stock investors,” Kim Seong-bong, a Samsung Securities analyst said.

Market losses are worsening in emerging and advanced countries after reports that Europe is to start a discussion about overhauling the European Union, which could lead to some of the continent’s debt-ridden countries leaving the euro.

By Cynthia J. Kim (cynthiak@heraldcorp.com)