UK and European stocks fell today as the failure of a US government committee to agree on sweeping spending cuts revived fears over out-of-control sovereign debt.
The bipartisan US congressional committee is expected to admit today that it cannot agree on a plan to cut back spending by $1.2 trillion (£760m) over the next decade to limit the country's debt pile.
The news, a stark reminder that debt problems threaten countries beyond the crisis-hit Eurozone, rattled investors and sent the FTSEurofirst 300 index of Europe's top stocks down 2.3 per cent.
The index is now down 15.6 per cent over the past year.
Fears were compounded by comments from rating agency Moody's in the French press, warning that France's AAA rating could be at risk from higher borrowing costs and weaker growth prospects.
A new centre-right government in Spain giving leader Mariano Rajoy a strong mandate for austerity policies was greeted with cautious optimism, but Spanish 10-year bond yields rose to more than 6.5 per cent.
In London, the FTSE 100 was down more than 100 points, or 2.1 per cent, in early trade with no stocks rising.
Miners led the fallers as risk appetite evaporated. Precious metals miner Fresnillo was off by 4.4 per cent and Xstrata down by 4.1 per cent.
Others such as Kazakhmys, Antofagasta and Rio Tinto each lost more than three per cent.
Banks also fared badly, with Barclays worst in the sector with a 3.3 per cent fall. RBS slipped three per cent, Lloyds was down 2.1 per cent, and HSBC down 1.9 per cent.
British Gas owner Centrica was the best performer, up 0.1 per cent after it signed two deals with Norway's Statoil to develop North Sea assets and supply natural gas worth more than £50bn to the UK over ten years from 2015.
But on the FTSE 250 life insurance buyout vehicle Phoenix gained 10.8 per cent after it confirmed it was in takeover talks with private equity groups.
Hovis and Branston Pickle owner Premier Foods was also up 7.5 per cent.
All eyes will be on the European Central Bank today as it reveals the extent of its sovereign bond-buying last week to bring yields down from their record highs.