Global stock markets mostly fell on Thursday as France and Spain faced a sharp spike in borrowing costs and Germany warned Italy\'s new prime minister to move fast to avert an even deeper debt crisis.
Dealers said sentiment was already under pressure after ratings agency Fitch warned overnight that US banks could be exposed if the eurozone crisis intensified, pointing up the risks to the global banking system.
German Chancellor Angela Merkel told Italian Prime Minister Mario Monti that "great hopes and expectations are directed at you.
"You and your government are called upon to quickly decide and implement crucial and necessary reform measures," Merkel said.
Economist Neil MacKinnon at VTB Capital in London said: "The eurozone crisis shows little sign of respite and there is a real risk of an escalation in the crisis."
In London, the FTSE-100 index of top companies closed down 1.56 percent at 5,423.14 points. In Paris, the CAC-40 tumbled 1.78 percent to 3,010.29 points and in Frankfurt the DAX 30 fell 1.07 percent to 5,850.17 points.
Milan lost 1.43 percent and Madrid shed 0.40 percent as the Spanish finance minister insisted the country was not in any need of a bailout despite a sharp rise in borrowing costs.
Despite the gloomy backdrop, the euro rose to $1.3519 from $1.3451 in New York late Wednesday, after falling overnight to $1.3422, its lowest level since October 10.
Spain\'s treasury had to pay a record 6.975 percent when it raised 3.563 billion euros ($4.808 billion) in a sale of 10-year bonds on Thursday.
The government had hoped to raise between three and four billion euros with the bond sale and the interest rate paid is the highest since the creation of the euro single currency, according to Dow Jones Newswires.
"Spain\'s debt auction will do nothing to settle nerves in Madrid," said research director Kathleen Brooks at trading site Forex.com.
"The yield investors demanded (was) ... millimetres away from the crucial 7.0-percent level considered to be the threshold that could push Spain to needing a bailout.
"Spain still has 12 billion euros of debt to auction next month. If sentiment does not start to pick up then we could see funding stresses reach a critical level in Madrid very quickly," Brooks added.
France too was forced to pay sharply higher rates to raise 6.976 billion euros in new two- and five-year government bond sales.
The AFT state debt management agency announced the sale shortly after the spread between German and French traded bonds showed the widest gap since the launch of the euro.
Despite new governments taking over in Italy and Greece to push through key reforms, the cost of borrowing for under-pressure countries remains dangerously high, with Italian benchmark 10-year bond yields once again topping 7.0 percent.
"The basic question is what is going to be done about Italian and Spanish bonds," said Edward Hugh, independent economist based in Catalonia, Spain.
"Is the ECB going to continue buying or is another formula going to be brought forward?," he asked.
"There seems to be a complete silence at the moment."
In New York, stocks were mixed after slipping at the opening. The blue-chip Dow Jones Industrial Average was up 0.15 percent but the tech-heavy Nasdaq Composite lost 0.55 percent.
Growing pressure in the eurozone markets overshadowed the US weekly initial jobless claims and hopeful data on housing starts and building permits numbers.
In Asian trade earlier on Thursday, Tokyo was up 0.19 percent, Sydney rose 0.25 percent while Hong Kong fell 0.76 percent and Shanghai shed 0.16 percent.
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