Mounting speculation that a leading credit agency is to imminently downgrade the ratings of a number of eurozone countries drove global markets sharply lower today and sent the euro spinning down to a 17-month low.
The euro nose-dived on speculation that Standard & Poor's was finally going to deliver the downgrades it had threatened for much of the 17-nation eurozone just over a month ago over concerns of Europe's ability to get a grip on its debt crisis.
In the run-up to the last meeting of EU leaders on December 9, S&P said it was putting 15 of the eurozone's nations on notice for a downgrade and there has been particular concern that France's rating would be cut.
A downgrade of the eurozone's triple A nations, such as France, could have far-reaching implications, potentially complicating the ability of Europe's bailout fund, the European Financial Stability Facility, or EFSF, to provide support to struggling countries. France is a major contributor to the EFSF.
Rumours of the downgrades provide further evidence that investors in the markets remain jittery despite some positive signs over Europe's debt crisis this week. Auctions from the likes of Italy and Spain have gone smoothly while the European Central Bank's chief noted signs of economic stabilisation.
"This rally is not built on solid foundations so this (selling) is indicative that underlying there's not much confidence," said Louise Cooper, markets analyst at BGC Partners.
Standard & Poor's did not comment on the speculation.
Nevertheless, the market response to the speculation was fairly savage across all markets.
In Europe, Germany's DAX closed down 0.6% at 6,143.08 while the CAC-40 in France fell 0.1% to 3,196.49. The FTSE 100 index of leading British shares ended 0.5% lower at 5,636.64.
Meanwhile, the euro was 1.1% lower at 1.2672 dollars, having earlier fallen to a low of 1.2623, its lowest level since August 2010.
In the US, the Dow Jones industrial average was 0.7% lower at 12,381 while the broader Standard & Poor's 500 index fell 0.7% to 1,286.
Earlier, Asian shares were mostly higher, responding to Thursday's strong debt auctions in Spain and Italy. Japan's Nikkei 225 index rose 1.4% to close at 8,500.02 and South Korea's Kospi index moved 0.6% at 1,875.68. Hong Kong's Hang Seng index vacillated before closing in positive territory, up 0.6% to 19,204.42.
But mainland Chinese shares fell as investors continued to cash in on recent gains. The benchmark Shanghai Composite Index lost 1.3% to 2,244.58, while the Shenzhen Composite Index dropped 3.5% to 845.93.
Even oil prices, which have been rising on fears of a strike in Nigeria and an embargo of Iranian oil, fell.
Benchmark oil for February delivery was down 30 cents to 98.80 dollars per barrel in electronic trading on the New York Mercantile Exchange.