European shares fell sharply and the single currency hit a two-week low on Wednesday as popular opposition within the euro zone to budget austerity measures unnerved investors already worried about a weak global growth outlook.
The market's focus was on Spain and Greece: protesters clashed with police in Madrid on Tuesday as the government prepared to unveil its 2013 budget on Thursday; and Greeks held a general strike as ministers sought to renegotiate a bailout.The worries over a worsening in the euro zone's financial crisis have contributed to a sharp rise in volatility on equity markets, leading to the worst day since June for the S&P 500 index on Tuesday and subsequent falls across Asia.
"With the demonstrations in Madrid on Tuesday, the euro zone crisis is intensifying again, and this had an immediate impact on U.S. indexes last night," FXCM analyst Nicolas Cheron said.
The single currency lost 0.3% to $1.2863, having dipped to $1.2856 at one point, its lowest level in two weeks.
Borrowing costs for Italy and Spain were also rising sharply after Italian Prime Minister Mario Monti said he would not run in an election due next year. Spain's prime minister, Mariano Rajoy, also said he would seek an international rescue package - but only if debt financing costs remained too high for too long.
Italian 10-year bond yields were up 9 basis points to 5.2%, and equivalent Spanish yields rose 12 basis points to 5.89%.
