The FTSE 100 opened down today as Italy's deepening debt crisis threatened to topple the Eurozone and plunge the world economy into uncharted waters.
The cost of borrowing on Italian government bonds jumped to seven per cent yesterday — a level considered unsustainable by economists.
Italy today launches an auction of as much as €5bn (£4.2bn) of one-year bonds, a sale aimed at staving off imminent disaster.
The European Central Bank was reportedly buying the country's debt which gave some solace to markets as did moves towards Italy forming a new government.
But shares of banks in both Japan and Australia were hit hard overnight as the Eurozone's turmoil sent shockwaves around global markets.
In Tokyo, Sumitomo Mitsui Financial Group tumbled 5.3 per cent, while Mizuho Financial group fell 3.8 per cent.
Meanwhile in London investors who would normally be fully focused on the Bank of England's interest rate decision due at midday were preoccupied with the crisis engulfing Europe.
Miner Vedanta Resources was the steepest faller on the FTSE 100, down 6.4 per cent after its results received a poor reaction from investors.
Vedanta's first half net profit fell 92 per cent compared with the same period last year due in part to market losses and acquisition costs for Cairn India.
In the same sector Xstrata and Antofagasta were off by 3.4 per cent.
Engineer IMI was down 3.6 per cent after its market update was given a poor reaction.
Engineer Meggitt was also under pressure, down 2.9 per cent as Citigroup downgraded its rating to "neutral" from "buy," citing valuation grounds.
Meanwhile insurer Admiral continued to fall after a profit warning triggered a dive in the stock yesterday.
On the up upside miner Anglo American was the highest climber with a 2.5 per cent jump sparked by its sale of interests in Chile to Japan's Mitsubishi for £3.38bn.
Credit research company Experian was up 1.2 per cent after it reported a rise in profits fuelled by growth in Latin America. Other risers, both up 0.6 per cent, were iPhone chip maker Arm and hedge fund manager Man Group.
Among UK banks Lloyds and RBS edged up.
In Asia the Nikkei closed down 2.9 per cent and the Hang Seng 5.2 per cent.
Meanwhile in UK corporate news supermarket heavyweight Wm Morrison reported a sales rise of more than seven per cent despite the gloomy economic scene for retailers.