Ratings agency Moody's has put Spain's credit rating on review due to concerns over the country's mounting debt.
The threat of a downgrade, which comes after the rating agency cut the country's sovereign debt rating from triple-A to Aa1 in September, will further escalate euro contagion fears after Ireland's €85bn bailout.
Markets across Europe fell in response to the rating agency's action, with London's FTSE down 0.3%, Germany's Dax slipping 0.5% and France's Cac 40 sliding almost 0.7%. Barclays is the FTSE's worst performer, down almost 3%.
The euro also lost ground against the dollar and sterling after Moody's announcement.
Yields on Spanish bonds rose today, too, in an indication investors lack confidence in Spain's economy and banking sector.
Spain's travails come as the sovereign debt spotlight also shines on Portugal in a sign contagion is spreading to the Iberian peninsular.
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