Last night credit ratings agency Moody's slashed its rating on Spanish government debt by three notches to 'Baa3' from 'A3', saying the newly-approved Eurozone plan to help Spain's banks will increase the country's debt burden.
Meanwhile Italy is set to offer up to €4.5bn in bonds at an auction later today and all eyes will be on their borrowing costs, which are expect to rise. Sunday's Greek election remains too close to call.
In London the FTSE was down 0.9 per cent in early trading with traders closely following BSkyB's record-breaking deal for rights to show Premier League football matches in Britain.
Shares in the firm dropped by seven per cent following yesterday's announcement that it has agreed to pay £2.3bn over three years to broadcast 116 live matches. This is a substantial premium on previous agreements and Sky appears to have been forced into a costly bidding war with new entrants. Football is the cornerstone of Sky's satellite TV business but analysts fear it may struggle to recoup the cost of this additional investment.
Fellow FTSE firm BT Group was the other successful bidder, with a surprise offer to pay £738m for 38 games over the same three year period. Its shares fell 2.8 per cent.
Miners also fell, tracking weaker copper prices as concerns over the debt crisis continued to be a factor sapping demand for metals. Glencore was down four per cent, Xstrata off 3.9 per cent and engineering firm GKN was down 3.5 per cent.
But Polymetal was the biggest riser, up 1.5 per cent.
Tullow Oil dropped three per cent after drilling was halted off the coast of French Guiana on environmental grounds. Shell was down 0.9 per cent on the same news.
In the FTSE 250, outsourcing firm Computacenter dropped 14.6 per cent after saying it would need to invest heavily to meet demand for its IT services. It is set to hire 700 new employees and buy new technology to support its business.
Retailer WH Smith was up almost three per cent despite announcing a slight drop in sales for the last quarter.
In Asia the Nikkei closed down 0.2 per cent and the Hang Seng was down 1.1 per cent.