European stocks slid deeper into the red on Tuesday and the euro fell on rising expectations that Greece is set for a default despite fresh international efforts to resolve the debt crisis.
German Chancellor Angela Merkel sought to ease fears over a possible Greek bankruptcy, saying the 17-country euro-zone had to stick together and that an "uncontrolled insolvency" must be avoided.
U.S. President Barack Obama warned overnight that the world economy would remain weak until the eurozone crisis was solved, as market anxiety mounted over debt woes in Greece, Spain and Italy.
After opening higher, European stock markets quickly reversed direction and fell for a second day running, although not a sharply as on Monday.
Shares in French banks plummeted again amid rumours that China was refusing to buy Italian government bonds, dealers said.
BNP Paribas, the bank most exposed to Italian debt, plunged by nearly 10.0% in early trading on the Paris stock exchange, with Societe Generale down by 4.0%.
Cairn Energy was the biggest faller in London, shedding almost 10.0% on news that the British energy explorer was plugging a well off the coast of Greenland -- a blow to its plans of finding crude in the region.
Italy meanwhile placed bonds worth close to 6.5 billion euros ($8.8 billion U.S.) on Tuesday but the yield it had to offer reached a new high level, the Bank of Italy said, revealing a marked lack of investor confidence.
In foreign exchange trade, the euro dropped below $1.36 but was off 10-year lows against the yen struck on Monday.
Speaking to German radio station RBB on Tuesday, Merkel said "the top priority is to avoid an uncontrolled (Greek) insolvency, because that would not just affect Greece, and the danger that it hits everyone -- or at least several countries -- is very big."
She stressed that the eurozone had to remain intact, hinting that if Greece were to leave the group, others would swiftly follow.
"I have made my position very clear that everything must be done to keep the euro-zone together politically. Because we would soon have a domino effect," said the chancellor.
Related Stories
