Markets tumble on debt contagion fears

World markets suffered a further collapse today after after European Commission President Jose Manuel Barroso warned the sovereign debt crisis is spreading.

He issued a rallying call to European leaders to give their “full backing” to the eurozone and reassess the European Financial Stability Fund (EFSF) to reduce the risk of contagion spreading.

But his words only served to increase investor worries, as the FTSE 100 Index fell 2% or 110.1 points to 5474.4, its lowest point for nearly a year.

It had already been down in early trading after the cost of borrowing for the Spanish government rose sharply in a recent debt auction.

More weak economic data from the US fuelled fears that the world’s biggest economy is in danger of falling back into recession after a slight rise in the number of people who applied for unemployment benefits.

In the US, the Dow Jones Industrial Average also fell more than 1%, while there were similar drops for the CAC 40 in France and the DAX in Germany.