Stock markets slumped across Europe today as mounting concerns over Spain and fresh strike action in Greece sent investors heading for the exit.
London's FTSE 100 Index fell 1.5 per cent, while the Cac 40 in France was 2 per cent lower and Germany's Dax dropped 1.9 per cent as eurozone crisis fears escalated.
Uncertainty over whether Spain will accept the terms of a bail-out sparked the latest sell-off, following violent riots in the country and as strikers again took to the streets in Greece to protest against austerity measures.
Investors were also spooked by a member of the US Federal Reserve casting doubt on the effectiveness of its economy-boosting efforts, which sent the Dow Jones Industrial Average on Wall Street more than 100 points lower overnight.
An uncertain start to trading on the Dow today fuelled the rout in London and Europe.
Spain's central bank said the country's gross domestic product continued to fall at a “significant rate” in the third quarter.
Worries over Spain caused 10-year bond yields to rise above 6 per cent for the first time since the European Central Bank outlined plans to intervene in the European bond market earlier this month.
But Spain's prime minister Mariano Rajoy has yet to say whether Madrid will apply for aid, given the conditions attached to such bail outs.
Colin Cieszynski, senior market analyst at CMC Markets, said global markets may be in for a “deeper correction” than first expected.
He added: “Hopes that a deal could be reached this week on a Spanish bank recapitalisation and perhaps a sovereign bailout continue to fizzle amid large scale protests in the country, uncertainty over upcoming regional elections and disagreement among EU member states over how to deal with the crisis.”
Banks and financial stocks were among the worst hit on the FTSE 100, with Royal Bank of Scotland and Barclays down 5 per cent, while Lloyds Banking Group dropped 4 per cent.
In the insurance sector, RSA fell 4 per cent, Aviva shed 3 per cent and Prudential was 2 per cent lower.
There were only a small handful of blue-chip firms in positive territory, with investors fleeing to defensive stocks such as cigarette maker British American Tobacco, up 0.4 per cent.