Amid the Eurozone finance ministers' failure to reach a deal over Greece during the weekend, concerns have grown over the Italian economy's outlook after rating agency Moody's warned last Friday of a possible downgrade to the country's ratings.

Rising fears were evident in markets Monday morning, as the Milan stock exchange index dropped more than two percent on opening. Banking stocks were the worst hit.

Moody's review of Italian debt for possible downgrade, plus upward pressure on Spanish bond yields, makes it clear that the markets are alert to this risk and the worst-case scenario of a 'Lehman moment' for the Eurozone, VTB Capital economist Neil MacKinnon said.

The rating agency cited challenges to growth emerging from structural weaknesses and a possible rise in interest rates as the main reasons behind the latest move.

The latest warning comes after rating agency Standard & Poor's downgraded Italy's rating outlook mid-April. The firm cut the Eurozone member's rating outlook to Negative from Stable to reflect its concerns over the heightened downside risks in the government's debt reduction plan.

Elsewhere on Friday, the International Monetary Fund lowered Italy's growth forecast for this year to 1 percent from 1.1 percent.

Over the weekend, Eurozone finance ministers have held off the decision to extend a fresh loan package to Greece, saying that the country needs to commit to further austerity measures to win the aid.

RTTNews