World equity markets sold off and the euro set new two-year lows against the dollar on Monday after reports that more indebted regions in Spain need financial aid fueled fears that the country may need a bailout.
Investors fled to safe-haven government debt and the US dollar as Spain's plight, concerns about economic growth and renewed market talk of a possible Greek exit from the euro zone drove investment decisions.
The euro slid as low as $1.2067, its weakest since June 2010, but later pared losses to trade near break-even at $1.2122. Against the yen, the euro was near a 12-year trough.
US crude futures fell 4%, and yields on US, German and British government debt hit record lows. But yields on Spanish government debt hit euro-era highs, easing later in the session.
Five- and 10-year German government bond yields set new lows and US. Treasury-note yields hit their lowest since the early 1800s. Ten-year U.S. Treasuries yields fell as low as 1.3977%, and last traded up 6/32 in price to yield 1.4364%.
Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to a euro-era high of more than 7.5%, above the 7% level many investors view as sustainable.
How Spain's 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euros in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.
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"Given the market reaction on the back of the news that more and more regions are looking to tap into the liquidity fund ... it will be very difficult for Spain to circumvent further support for itself," said Norbert Aul, a rate strategist at RBC Capital Markets.
The International Monetary Fund dismissed a weekend news report that it may refuse to continue supporting Greece as it prepares for talks with the new Greek government on its international bailout.
Worry over Greece resurfaced with international lenders scheduled to gather in Athens on Tuesday to discuss the terms of further rescue payments after its prime minister said the country was mired in a "Great Depression.
"All it does is it brings up that whole crisis again - all that tells you, it really didn't go away," said Ken Polcari, managing director at ICAP Equities in New York.
US stocks fell 1%, while equity markets in Europe ended lower by 2% or more.
The Dow Jones industrial average was down 125.29 points, or 0.98%, at 12,697.28. The Standard & Poor's 500 Index was down 14.84 points, or 1.09%, at 1,347.82. The Nasdaq Composite Index was down 37.90 points, or 1.30%, at 2,887.40.
The FTSE Eurofirst 300 index of top European shares fell 2.4% to close at 1024.27 points, while the euro zone's blue-chip Euro STOXX 50 index dropped 2.6% to 2,179.31 points, breaking below a key support level.
MSCI's emerging markets index was down 2.7% and its all-country world equity index fell 1.8%.
Spain's main share index, the Ibex, closed down 1.1%, having dropped more than 4% earlier in the session.
Highlighting Spain's urgent situation, the country must make coupon and redemption payments to bondholders totaling 20 billion euros next Monday.
Spanish Economy Minister Luis de Guindos has insisted Spain does not need a full sovereign bailout, such as those approved for Greece, Ireland and Portugal.
Brent crude, the world benchmark, briefly slipped below $103 a barrel. Brent was down $3.59 at $103.24 a barrel.
US crude for September delivery settled down $3.69 a barrel at $88.14.
The Reuters/Jefferies CRB Index of 19 commodities was down 5.65 points, or 1.86%, at 298.92.
Spot gold prices fell $7.73 to $1,575 an ounce.