European stock markets and the euro slumped in early deals Tuesday on growing fears that the eurozone debt crisis will spread despite fresh measures aimed at preventing contagion, traders said.
London's FTSE 100 index shed 1.90 percent to 5,816.57 points, also following heavy losses across Asia and overnight on Wall Street.
Frankfurt's DAX 30 dived 2.69 percent to 7,038.96 points and in Paris the CAC 40 slid 2.36 percent to 3,717.70 points. The Milan exchange dived more than 4.0 percent and Madrid lost 3.75 percent, with indices pulled lower by sinking bank shares.
"This is as much a banking crisis as a sovereign debt crisis," said Neil MacKinnon, an economist at VTB Capital.
"Policymakers need to address mechanisms that allow for both debt restructuring and bank recapitalisation. In the interim, without a coherent policy response, a disorderly and volatile period looks set to continue."
The European single currency meanwhile tumbled to a four-month low of $1.3837 in London foreign exchange deals.
Eurozone members on Monday agreed to strengthen a multi-billion-dollar fund to prevent Europe's debt woes engulfing other states.
But investors are increasingly concerned that political leaders and bankers holding Greek debt talks in Brussels are unable to agree on how to avert an outright default by Athens.
Analysts fear that the Greek crisis might spread to heavily-indebted Italy and Spain Europe's third and fourth largest economies respectively.
"It has long been assumed that as long as Greece, Portugal, and Ireland remained the only eurozone countries to fall into trouble, the situation was manageable with spill-over effects likely to prove negligible," said Lee Hardman, an economist at The Bank of Tokyo-Mitsubishi UFJ.
"However, the sharp collapse in investor confidence in Italian and Spanish government debt over the past week has set alarm bells ringing."
Italian banking shares were the hardest hit in early European trading on Tuesday, with Italy's UniCredit shedding 7.11% to 1.072 euro and Intesa Sanpaolo dropping 6.62% to 1.425 euro.
Europe's troubles weighed on Asian stocks, with Tokyo closing down 1.43 percent to 9,925.92 points on Tuesday. Sydney shed 1.90 percent and Seoul tumbled 2.20 percent.
US stocks plummeted Monday as worry about Europe's worsening debt crisis clouded markets already walloped Friday by sour US economic data.
The Dow Jones Industrial Average closed down 1.20 percent to 12,505.76 points.