Global stock markets tumbled, the euro slumped to a nine-month low and oil prices took heavy falls as fears about European debt levels and US jobs cast a new pall across the world economy yesterday.

A grim day of trading in Asia's main share markets, including a near-three-per cent dive in Tokyo, was echoed in Europe where London's main FTSE index lost 1.62 per cent, Frankfurt 1.29 per cent, Paris 2.10 per cent and Madrid 2.35 per cent.

The falls accelerated heavy losses on Thursday amid mounting fears about the impact of the tattered finances in Greece, Spain and Portugal on the 16-nation eurozone.

The euro tumbled to its lowest point since May, with investors bolting for the safe-haven dollar. The euro fell as low as $1.3648, a level last seen on May 6, 2009.

"It's been a dismal 24 hours," said CMC Markets analyst Michael Hewson.

"Stock markets, commodities and currencies have fallen around the world, while bond default risk has soared (and) investors have fled risky assets into the relative safety of the dollar."

The Nikkei index in Tokyo plummeted 2.89 per cent, while the Seoul stock market fared even worse with a 3.05 per cent drop.

"What we're seeing is a wave of panic selling," said Francis Lun, general manager of Fulbright Securities in Hong Kong, where the Hang Seng index tumbled below the key 20,000 level in early trade for the first time in five months.

Spain's stock market fell by 5.65 per cent on Thursday amid mounting concern over its debt level. The Socialist government announced plans last week to slash the public deficit to the EU limit of three per cent of gross domestic product by 2013 after it mushroomed to 11.4 per cent last year.

But public debt is projected to rise from 55.2 per cent of gross domestic product in 2009 to 74.3 per cent in 2012, above Europe's 60 per cent limit.

Greek debt has reached a massive 113 per cent while its deficit rose to 12.7 per cent last year. The Socialist government there has vowed to bring the deficit under the EU limit in 2012.

Portugal's deficit rose to 9.3 per cent last year, a record since the advent of democracy in 1974.

Speaking on Thursday on a visit to Washington, Spain's Prime Minister José Luis Rodriguez Zapatero acknowledged the pressures hitting Europe's economy.

"This is not an easy moment, there are fundamental economic challenges of great magnitude for Spain and other countries" in Europe, he told reporters.

Mr Zapatero flew home to host a Cabinet meeting to discuss job market reforms, with Spain experiencing record unemployment.

Britain's Business Secretary Peter Mandelson, whose country is not part of the eurozone, also acknowledged that London was struggling with its debt burden.

"We know that we have a challenging job to repair our public finances and to reduce our deficits," he said on a visit to Germany.

"The British government remains strongly committed to the turnaround in our public finances in our own country. But the best antidote to debt is economic growth."

"In difficult times like these, it is all the more important that we combine all our forces in Europe to push for additional growth impulses," German Economy Minister Rainer Bruederle said at the same news conference.

Britain and Germany recently crawled out of recession, but the recovery seen in most major economies remains delicate.

The United States has also seen a return to growth but the jobs market remains in deep trouble.

Data on Thursday showed seasonally adjusted unemployment insurance claims rose to 480,000 in the week ending January 30, up 8,000 from the previous week.

The benchmark price for a barrel of oil plunged nearly four dollars in New York trade Thursday after the rise in jobless claims, although there was a slight bounce in Asia yesterday, rising 27 cents to $73.41 in afternoon trade.

Meanwhile talks aimed at keeping a tentative global economic recovery on course were to top the agenda at a meeting of Group of Seven finance ministers and central bankers in Canada.

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