Global stocks slid further Thursday, as investors worried that Europe's debt crisis was intensifying and spreading to larger countries in the 17-nation eurozone.
Bond investors pushed up borrowing rates for Spain and also for France, where the spread, or extra yield, demanded compared to safe-haven German bonds widened to a record 2 percentage points.
Meanwhile Germany's chancellor Angela Merkel again brushed aside pressure for a quick-fix solution to the euro crisis despite the mounting market tensions, arguing that spreading debt liability could ruin Europe's competitiveness and a massive European Central Bank bond-buying drive wouldn't resolve its problems.
The German chancellor argued in a speech Thursday to an economic conference that rather than look for quick fixes, Europe needs to consider growth-promoting measures that don't immediately cost money, such as labor-market reforms _ and that such measures will require patience.
The results of a Spanish debt auction soured sentiment. The country paid nearly 7 percent to raise euro3.56 billion ($4.8 billion) in 10-year bonds, the highest rate since 1997 and a level seen as unsustainable over the long term.
Demand was relatively weak. The amount of debt sold came in under the euro4 billion maximum target set by the Treasury and the bid to cover ratio was 1.54, compared to 1.76 last time.
"The results of the Spanish bond auction are revisiting familiar fears for investors," said David Jones, chief market strategist at IG Index.
After the auction, yields on Spanish 10-year bonds shot up to 6.75 percent on the secondary market. That was 4.88 percentage points above the yield of the equivalent benchmark German bund. However, the yield dropped back to end the day at 6.44 percent on mooted bond-buying from the European Central Bank, which never comments on the speculation.
France too saw its borrowing costs rise, after it raised euro6.98 billion ($9.41 billion) at an auction of mid-term bonds that saw strong demand.
Italian bond yields ended the day a little lower at 6.81 percent after new premier Mario Monti vowed to focus on restoring growth, while warning that the end of the euro "would cause the disintegration of the united market."
"The future of the euro also depends on what Italy will do in the next week,"the economist and former European Union competition commissioner told the Senate ahead of a confidence vote on his one-day-old government.
The spreading economic gloom pushed oil prices lower. By early afternoon in Europe, benchmark crude for December delivery was down $2.90 to $99.69 a barrel in electronic trading on the New York Mercantile Exchange.
Traders will later focus on Rome, where new Italian Premier Mario Monti will unveil his government's anti-crisis strategy in Parliament. Across the country, transport unions called for walkouts and strikes to demand better work contracts and protest cuts.
Scuffles among students were reported at the start of the demonstration in Milan, where they hoped to march to Bocconi University, which trains Italy's business elite. Monti, an economist, is Bocconi's president.
In Europe, Britain's FTSE 100 fell 1.6 percent to 5,423.14 while France's CAC-40 ended 1.8 percent lower at 3,010.29. Germany's DAX was down 1.1 percent to 5,850.17. The euro however held its own after recent losses, trading 0.1 percent higher at $1.3453.
On Wall Street, the Dow Jones industrial average was 1.5 percent down at 11,722 while the broader S&P 500 index fell 1.9 percent to 1,214.
Earlier in Asia, Hong Kong's Hang Seng dropped 0.8 percent to close at 18,817.47 while South Korea's Kospi climbed 1.1 percent to end at 1,876.67. Japan's Nikkei 225 index was up 0.2 percent to finish at 8,479.63.
Mainland China's benchmark Shanghai Composite lost 0.2 percent to close at 2,463.05 while the Shenzhen Composite Index gained 0.1 percent to close at 1,060.55.
Kelvin Chan in Hong Kong and Fu Ting in Shanghai contributed to this report.