Europe's government debt market was hit again on Wednesday, with Italy's borrowing costs above the 7% level widely viewed as unsustainable despite the European Central Bank buying up its bonds.
Equity markets fell and Wall Street looked set to open lower. The euro itself hit a one-month low against both the dollar and the Japanese yen before recovering a bit on the ECB's intervention.
Italian 10-year bond yields were at 7.18%, the level generally seen as requiring an outside bailout.
Contagion has spread. Yields on core euro-zone bonds issued by France, the Netherlands and Austria also rose as investors fretted about the ability of euro zone policymakers to end the crisis.
Euro-dollar cross currency swaps widened, a move that in the past has past has indicated that European banks are having difficulty raising dollar funding.
Traders said the ECB had bought Italian and Spanish debt, but an initial boost was wearing out. The central banks was "heavily in on Italy and Spain, two to 10 years," one bond trader said.
Contagion from the weakest debt-ridden euro zone economies such as Greece into bigger ones such as Italy, Spain and even France is now the dominant fear for global investors.
It is no pandemic yet, but yields -- how much it costs governments to borrow on financial markets -- have been rising sharply almost across the board, with France now firmly on the firing line, suggesting the steps taken by policymakers and governments to contain the crisis have been nowhere near enough.
Investors question the ability of debt-ridden euro-zone countries such as Italy to do what it takes to reverse their economic decline and the long-term willingness of the European Central Bank to act forcefully enough to end the crisis.
Up to now, it has bought bonds intermittently and only in sufficient size to stem sharp selloffs.
Attention is turning to France, one of the euro-zone's "core" economies, but with a large debt to GDP ratio. Yields on French 10-year bonds rose to 3.73%, having traded around 2.5% only two months ago.
If France succumbed, the entire euro project would be in peril.
French yields are way below crisis levels but still around two percentage points higher than German equivalents, a euro-era record.
World shares were generally lower with the MSCI all-country world index off half of one percentage point.
In Europe, the FTSEurofirst 300 was down a quarter of a percentage point.
The macroeconomic picture, framed by the debt crisis, is not robust. Data on Tuesday showed the economy of the 17-nation euro-zone barely grew in the third quarter. ECB President Mario Draghi has predicted the currency bloc will be in a mild recession by the end of the year.
The euro slipped to a fresh one-month low against the dollar and the yen.
The common currency fell as far as $1.3437 U.S., its lowest level in more than a month, after the French bond yield spread over benchmark German bunds hit its euro-era high.
It was later flat on the day at $1.348.
