Eurozone banks, which own the bulk of the region’s debt, fell 3.1% after Spain sold less debt than it had hoped for.
Economy minister Luis de Guindos acknowledged in a Reuters interview that the belief that Madrid may not be able to control its finances was the largest risk the Spanish economy faces.
The Irish stock exchange fell 2% on the back of the Spanish crux and the US Federal Reserve’s announcement that the third round of quantitative easing is unlikely to go ahead.
Across Europe stocks, fell for a second day after the Federal Reserve damped expectations of more monetary stimulus for the US and Spain sold fewer bonds than its maximum target.
In London, the FTSE was down 2.3%, while the CAC in Paris fell 2.7% and the German index, the Dax, was down 2.8%.
European shares falling included Volvo AB tumbled 5.2% after ACT Research said North American preliminary truck orders in March were less than expected.
Carmakers declined, with Peugeot and Renault dropping at least 5% each, after a report showed US sales of light vehicles rose less than forecast. Royal Bank of Scotland Group Plc lost 4.1% after people familiar with the matter said the lender cancelled a bond sale.
Trading had been expected to be poor yesterday after minutes from the Fed meeting had suggested that the third round of quantitative easing was unlikely to go ahead.
Capital Spreads managing director Simon Denham said: “After each rally people start to get excited that we could push higher and break through to new highs, but then the markets come up against resistance and fail to follow through,” he said.
The Fed is holding off on increasing monetary accommodation unless US economic growth falters or prices rise at a rate slower than its 2% target, minutes released showed.