ATHENS - Greece was yesterday pushed to the brink of a financial abyss and started dragging another eurozone country - Portugal - down with it, fuelling fears of a continent-wide debt meltdown.
Global stocks tanked after ratings agency Standard & Poor's downgraded Greek bonds to junk status and downgraded Portuguese bonds two notches, showing investors Greece's financial contagion is spreading.
Britain's leading share index dropped in early trade last night, extending sharp falls. The FTSE 100 index was down 0.9 per cent.
In the previous session, the FTSE tumbled 2.6 per cent and on Wall St the Dow Jones industrial average finished down 1.9 per cent.
New Zealand's NZX-50 yesterday avoided the worst of the fallout, dipping 0.4 per cent. Australia's benchmark lost 1.2 per cent.
"We have the makings of a market crisis here," said Neil Mackinnon, global macro strategist at VTB Capital.
Greece is struggling with massive debt, and with prospects for economic growth weak it could end up in default.
Its 15 eurozone partners and the International Monetary Fund have tried to calm the markets with a €45 billion ($83 billion) rescue package, but it hasn't worked.
Standard & Poor's warned that holders of Greek debt could take large losses in any restructuring, but a greater worry is that Greece's debt crisis is mushrooming to other debt-laden members of the eurozone.
One bailout can be dealt with but two will be stretching it, and there are fears that other weak economies could be pulled down in the Greek spiral - including Europe's fifth-largest, Spain.
The crisis threatens to undermine the euro and make it harder and more expensive for all eurozone Governments to borrow money.
It has disrupted co-operation between eurozone Governments, with Germany resisting bailing out Greece unless strict conditions are met.
Both Standard & Poor's and the Greek Finance Ministry insisted that the country will have enough money to make the €8.5 billion bond payments due on May 19.
Even if it does, Greece faces years of austerity with living standards sharply reduced.
Standard & Poor's warned that the Greek economy was unlikely to be as big as it was in 2008 for another decade.
Junk status sinks Greece's hopes even deeper.
Losing investment-grade status for its bonds means that Greece will have to pay higher costs to borrow.