European equities slumped yesterday and the euro tumbled to its lowest point since January, as markets were hit by mounting fears over the eurozone and a potential exit of Greece from the currency bloc.
Investor sentiment was rattled as Greek politicians failed again to form a government over the weekend, while the German government faced more gloom at the polls.
Madrid and Milan shares also plunged by more than three per cent early in the day on heightened concern the pair could fall victim to the eurozone sovereign debt crisis, should Greece leave the eurozone.
In London, the benchmark FTSE 100 index of top companies lost 1.97 per cent to 5,465.52 points, while in Frankfurt the DAX 30 dropped 1.94 per cent to 6,451.97 points and in Paris the CAC 40 fell 2.29 per cent to 3,057.99 points.
The European single currency dived at one point to $1.2830, the lowest point since January 18. It later recovered to stand at $1.2845, down from $1.2917 late in New York on Friday.
The dollar slipped to 79.81 Japanese yen from 79.92 yen on Friday.
“The lack of confidence in the euro is telling as stock markets Europe-wide are feeling the weight this Monday,” said broker Jonathan Bristow at Valbury Capital.
“Greece’s time in the euro seems limited now, and a large bill for their default will need to be paid and Germany’s percentage of that will be large enough to shake the eurozone further.”
“European markets have dropped sharply lower today driven down by growing concerns that a Greek exit could mark the beginning of the fracturing of the euro,” said Michael Hewson, Senior Market Analyst at CMC Markets UK.
“This fear has sent European bond yields in Spain and Italy surging, while German yields have dropped to all-time lows on safe haven capital flows,” he added.
Madrid closed down by 2.66 per cent and Milan was down 2.74 per cent. Amsterdam shares dropped by 2.37 per cent, Zurich by 1.33 per cent and Brussels 2.28 per cent.
Spain had to pay higher rates to raise €2.903 billion in short term debt yesterday, while on the secondary market the yield on Spanish 10-year bonds rose to 6.227 per cent.
Italian benchmark yields also rose, reaching 5.697 per cent, while the yield on the German bund, a safehaven investment amid the turmoil, fell to 1.457 per cent.
French benchmark yields rose to 2.829 per cent.
Markets have tumbled since pro-austerity parties were kicked out of government in France and Greece on May 6, in a backlash against the swingeing cuts put in place as part of moves to balance budgets.
Greek stocks fell another 4.56 per cent, having lost more than 11 per cent last week.
ETX Capital trader Markus Huber said uncertainty had re-emerged as a main factor in the markets.