Italian stocks closed down 3.87 percent on Monday with shares in Italy's top banks leading the losses as the long-term borrowing rate on government bonds rose sharply, reflecting investor nerves. The main FTSE Mib index dropped to 17,720 points with shares in insurance company Fondiaria-SAI plummeting 9.19 percent, UBI Banca plunging 7.93 percent and Intesa Sanpaolo lost 7.86 percent. UniCredit, Italy's largest bank, dropped 4.32 percent. Business daily Il Sole 24 Ore said there had been "a new wave of sales in Milan" while financial website firstonline.info said: "The Obama effect has run out" -- referring to a debt deal in the United States. Global stock markets were higher earlier on the US debt agreement but doubts grew as the day went on and sentiment then took a knock when a closely watched report on the US manufacturing sector was flat in July in another sign of the world's biggest economy sputtering. The difference between the rate on Italian and German 10-year government bonds -- a key indicator of investment risk -- rose sharply to over 350 basis points. Italy has one of the highest public debt levels in the world and one of the lowest economic growth rates in Europe. Investors have also worried in recent weeks over rising tensions within Prime Minister Silvio Berlusconi's government.