Spanish stocks have dropped sharply after ratings agency Moody's downgraded its credit score of 16 Spanish banks in the latest blow to the troubled financial sector.

The Ibex 35 index was off more than two points shortly after trading began Friday. Banks were among the biggest losers.

Moody's acted late yesterday, citing banks' load of non-performing loans amid a recession-plagued economy, their creditworthiness and the government's sovereign debt problems, among other woes.

Those punished included Banco Santander, the eurozone's largest bank by market capitalisation.

Shares in Bankia, a recently nationalised bank, took a roller coaster ride yesterday, ending up sharply lower on reports depositors pulled out a a billion euro in a week.

On the bond market the interest rate on 10-year bonds was unchanged at 6.25 %.

Earlier, Asian stocks plunged after discouraging US economic reports unnerved investors already worried about the stability of the 17-country eurozone.

Japan's Nikkei 225 plummeted 2.4% to 8,660.23, as a strengthening yen battered the country's behemoth export sector.

Hong Kong's Hang Seng fell 2.1% to 18,802.45 and Australia's S&P/ASX 200 dropped 2.2% to 4,064.40.

South Korea's Kospi fell 2.5% to 1,798.36. Benchmarks in Singapore, Taiwan, mainland China and New Zealand also fell.

US stocks closed lower after a report showed manufacturing slowed in the mid-Atlantic region for the first time in eight months, to minus 5.8 from 8.5 in April.

Readings below zero indicates contraction.