Its proposals - which include a monthly basic income for Italy's poorest and a two tier "flat" tax - have anxious Brussels and the financial markets given Italy's massive 2.3 trillion euro ($2.7 trillion) debt.
The new government coalition consists of the anti-establishment 5-Star Movement and the right-wing League.
The U.S. Dollar continued to lose ground against a basket of major currencies on Thursday as investors assessed the potential impact of a euroskeptic government in Italy on the stability of the European Union and its use of the Euro as its currency. This could also restrict Chinese investment in the United States and what products USA companies can sell to China. The parties will likely keep negotiating, and contentious talks between the US and China are due to resume during the weekend.
Investors dumped Italian government bonds, driving borrowing costs sharply higher for that country and rekindling fears of more financial strain for Europe's third-largest economy.
Analysts at the Peterson Institute for International Economics said in a blog post that "none of the powerful stabilization instruments that the euro area has developed over the years could be deployed to rescue Italy".
CURRENCIES: The dollar rose to 109.53 yen from 108.83 yen. The Dow Jones industrial average turned negative for the year as it lost 391.64 points, or 1.6 percent, to 24,361.45.
The Bloomberg US Dollar Spot Index was little changed after rising 0.4 per cent to the highest in more than five months.
On the economic front while the euro zone's economy has been slowing down from strong growth past year, consumer price data published on Thursday showed inflation jumped to 1.9 percent, well above forecast of 1.6 percent. The sharp move higher reflects weakening confidence among investors in Italy's government.
The Italian President Sergio Mattarella may well have been perfectly within his rights to veto the appointment of Paolo Savona as finance minister of a new populist Italian government but the way he went about it has been a gift to euro sceptics across Europe, let alone in Italy, fuelling a perception that the established order is subverting democracy.
The improved mood encouraged investors to sell US and German bonds, reversing some of the 0.15-0.20 percentage point yield rises seen on Tuesday.
The authors said an Italian exit from the euro is still not likely, in part because so much Italian debt is held by Italians.
The spread, or difference in yield, between Italian and German 10-year government bonds, fell to 217 basis points after crossing the symbolic threshold of 300 basis points on Tuesday.
In Spain, political vacuum looks set to be averted as Pedro Sanchez was nearly certain to become Spain's new Prime Minister after his socialist party secured enough votes to topple Mariano Rajoy in a confidence vote scheduled on Friday over a corruption case.
ENERGY: U.S. crude oil fell 25 cents to $66.50 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price global oils, dropped 40 cents to $77.16 per barrel.
German unemployment dropped to a super-low 3.4 percent in April, with the Netherlands at 3.9 percent. Sydney gave up 0.5 %, Singapore dived 1.7 % and Seoul was 1.6 % decrease.
ASIAN SCORECARD: Japan's Nikkei 225 index fell 0.1 percent to 22,171.35 and the Shanghai Composite index tumbled 0.7 percent to 3,075.14.
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