Fears of Greek default send markets into spin

Stock market investors endured another rocky ride yesterday, with shares in European banks falling to their lowest level in more than two years amid concerns that Greece could default on its debts.

The fears were supplemented by the results of an auction of Italian treasury bills that saw Rome's cost of borrowing for 12 months spiral up to its highest level in three years.

Earlier, the German economy minister Philipp Rösler raised the prospect of a Greek default, saying: "To stabilise the euro, there can no longer be any taboos." This includes the possibility of an "orderly bankruptcy of Greece", he warned in comments over the weekend, rattling nerves across dealing rooms as traders returned to work.

Market sentiment was already fragile following the resignation last week of Germany's Jürgen Stark from his position on the European Central Bank board. Mr Stark opposed the ECB's controversial programme to buy government bonds in an attempt to soothe market nerves.

The apparent disunity at the top of eurozone's monetary authority, along with talk of further problems in Greece, higher borrowing costs for Italy and lingering concerns about global growth, kicked off what was the latest in a series of sell-offs across stock markets. London was caught up in the rout, with the FTSE 100 shedding 1.6 per cent of its value to close at 5,129.6 last night.

In Germany, the main stock market was 2.3 per cent lower, while the Paris exchange fell by 4 per cent as the news of an explosion at a French nuclear site compounded the stress. The Italian market was also down by 4 per cent, while Spanish stocks fell by 3.4 per cent.

The Stoxx Europe 600 banks index, which tracks the big European and British lenders, fell by 4.6 per cent to its lowest level since March 2009.