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Greek crisis rocks markets

GREECE’s financial chaos threatened to spiral out of control last night, battering world markets as fears rose that other European nations could be swept up into the crisis.

The FTSE 100 Index sunk 2.6 per cent to 5603.5 amid a global sell-off with the Dow Jones Industrial Average plummeting 1.9 per cent to 10,991.9, France’s Cac 40 losing 3.8 per cent and Germany’s Dax falling 2.4 per cent, while the euro suffered its biggest one-day percentage drop against the dollar in a year, trading 1.6 per cent lower at $1.32.

Meanwhile, five-year credit default swaps on Greek government debt rose to a record high of 821 basis points from 710.3 basis points, and the cost of insuring Portuguese debt for five years rose to a record 370.3 basis points from 311.2 basis points. Analysts attributed the dramatic falls, which followed Standard & Poor’s decision to cut its credit rating on Greece to “junk” territory and slash its rating on Portugal, to fears that there are other weak links within the eurozone yet to be exposed.

“There’s just a feeling that there’s still more to bad news to come. People know Greece and Portugal are issues, but the gorilla in the room is still Spain,” said Win Thin, a currency strategist at Brown Brothers Harriman.

Meanwhile, the International Monetary Fund is in talks to increase its share of the planned Greek financial package to €25bn, according to the FT. Currently, the size of the package totals €45bn.