Investors bailed out of stocks, fearing a Greek debt default that could hurt European banks and raise questions over the future of the euro zone.
France's CAC 40 plunged 4.9 per cent, even as Societe Generale Bank, which dropped 10 per cent, tried to calm investors by saying its exposure to Europe's more imperilled economies is diminishing. Germany's DAX sank 3.5 per cent. Britain's FTSE 100 fell 2.5 per cent. Deutsche Bank and BNP Paribas dove about 10 per cent as well, as investors worried about their exposure to bad European debt. Japan's Nikkei closed at a 2-1/2 year low.
U.S. stock futures reflected nerves as well. Dow futures were down 2 per cent, or 216 points, at 10,733 and S&P 500 futures sank 2 per cent, or 23.10 points, to 1,129.2, about two hours before trading began.
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Senior German politicians have suggested publicly in recent days that an orderly bankruptcy of Greece may be part of a solution to the country's problems. The idea has been a taboo so far in Europe's handling of the crisis. The shock resignation on Friday of the European Central Bank's chief economist Juergen Stark added to the turmoil in markets, since he had been a consistent skeptic over the bank's purchases of shaky government bonds, exposing it to the risk of huge losses.
The euro fell as low as $1.3495 (U.S.) — its lowest level since the middle of February.
Yields on long-term core euro zone debt fell sharply, and the cost of insuring peripheral euro zone debt against default rose to record levels for Greece and Portugal.
The yield on 10-year U.S. Treasuries fell two basis points to 1.9 per cent, a record low. Greek two- year rates climbed above 60 per cent for the first time.
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The Canadian dollar slipped to $1.0005 (U.S.).
Crude oil dropped 1.6 per cent to $85.89 a barrel, after OPEC slashed its global oil demand forecast by 150,000 barrels per day for 2011 and by 40,000 barrels per day for 2012, citing weak economic growth in key industrialized nations and a weak U.S. driving season.
Gold traded at $1,847.30 an ounce.