World markets plunged Tuesday as Europe's debt crisis intensified when Standard & Poor's downgraded Greece's debt to junk status and hit Portugal with a two-notch rating cut.
In Europe, the FTSE 100 index of leading British shares closed down 150.33 points, or 2.6 percent, to 5,603.52 while Germany's DAX slid 172.59 points, or 2.7 percent, to 6,159.51. The CAC-40 in France ended 152.79 points, or 3.8 percent, lower at 3,844.60.
On Wall Street, the Dow Jones industrial average was down 132.25 points, or 1.2 percent, at 11,072.78 around midday New York time while the broader Standard & Poor's 500 index tumbled 18.17 points, or 1.5 percent, at 1,193.34.
And the two countries in the firing line tanked too, though the downgrade of Greece came after Athens' stock market had shut — even so the composite index ended 6 percent lower at 1,696.68. Lisbon's main PSI index was 4.4 percent lower at 7,223.04.
Once again, the debt crisis engulfing the eurozone was at the forefront of investors' attention despite last week's request by the Greek government to tap a rescue package from its 15 partners in the eurozone and the International Monetary Fund.
Standard & Poor's said it was lowering its rating on Greece's debt to BB+ from BBB- — that means that the country's debt does not carry the investment grade tag.
The agency is also warning debtholders that they only have an average chance of between 30 to 50 percent of getting their money back in the event of a debt restructuring or default.
It also downgraded its credit rating on Portugal amid mounting concerns about the country's ability to get a handle on its debt load — the two notch downgrade to A- reflected its view of "the amplified risks" Portugal faces.
"It just gets worse," said David Buik, markets analyst at BGC Partners.
"Strong resolute and united leadership is required to stabilize markets," Buik added.
Many in the markets are blaming the hardline approach of German Chancellor Angela Merkel for the latest bout of jitters engulfing the markets.
Merkel is demanding strict conditions for the release of the funds — Germany's share is euro8.4 billion — ahead of a May 9 election in North Rhine/Westphalia, Greek borrowing costs continue to trade at sky-high levels.
"The situation in the Greek financial market has descended into chaos," said Jeremy Batstone-Carr, head of private client research at stockbrokers Charles Stanley.
"Investors hate delay during times of crisis...two weeks or more is a long time to wait in times of crisis," he added.
Greece has to make its next batch of debt repayments on May 19 — whether it gets the money in time is now in question.
"Greece has a funding requirement of just under euro10 billion for May, so there is very little time for a stand-off on the issue," said Jane Foley, research director at Forex.com.
Even if it does receive the bailout funds in time, there's a growing consensus in the markets that it won't be enough to prevent a restructuring of the country's debt. Investors increasingly think that the end-game will be a change to the terms of the debt — that could involve payment extensions or payment reductions.
Another loser from Greece's debt woes has been the euro, which fell another 1.2 percent to $1.3235 as the political institutions behind the single European currency leave investors in a state of profound confusion.
While Greece's debt crisis continues to dominate headlines, there is a lot of economic news this week that could have a marked impact on investor sentiment — most important will likely be Wednesday's rate-setting meeting of the U.S. Federal Reserve and Friday's first estimate of U.S. economic growth for the first quarter of the year.
Even if the U.S. economic news cements market expectations that the world's largest economy is recovering solidly, analysts said the Greek debt crisis could continue to weigh on sentiment.
Also denting confidence in Asia Tuesday was ongoing anxiety about China, where the government has taken a series of steps in recent months to bring down property prices and avert asset bubbles.
In Asia, Hong Kong's Hang Seng index dropped 1.5 percent to 21,261.79 and China's main Shanghai benchmark slid 2.1 percent to 2,907.93.
Elsewhere, South Korea's market was off 0.2 percent despite data showing that the country's economic growth accelerated sharply in the first quarter of 2010. Gross domestic product expanded 1.8 percent in the January-March period from the fourth quarter last year.
Taiwan's index lost 0.1 percent and Australia's index was little changed.
In Japan, the Nikkei 225 index reversed early losses to add 46.87 points, or 0.4 percent, to 11,212.66.
Oil prices fell in Asia with benchmark crude for June delivery down 49 cents at $83.71 a barrel.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
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