Stocks slumped again on world markets overnight, and may be set for further losses as Greece appears to have taken another step closer to defaulting on its debt regardless of how EU policymakers proceed.
In late trading in New York, the Dow Jones Industrial Average sank 1.75 per cent, the Standard & Poor's 500 Index dropped 2.05 per cent and the Nasdaq Composite Index shed 2.32 per cent.
"There's reason to think that the bears will take control," Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati told Bloomberg News. "We violated that low for the year. It could definitely lead to some accelerated selling here."
Things didn't look much better in Europe, where the Stoxx 600 Index ended the day with a 1.1 per cent drop after Greece said it will fall short of the European Union and International Monetary Fund requirements for its budget deficit.
The 2012 fiscal targets would be met in absolute terms and Greece would have a primary surplus before debt service for the first time in many years, Greek Finance Minister Evangelos Venizelos said in a statement.
However, next year's deficit is forecast at 6.8 per cent of gross domestic product, rather than the 6.5 per cent EU/IMF goal, because the economy is set to shrink by a further 2.5 per cent after a record 5.5 per cent contraction in 2011.
As a result stocks of lenders in Europe got pummelled, especially Dexia SA, plunging 10 per cent today, as Moody's Investors Service placed the credit ratings of its three main operating entities on review for possible downgrade.
Investors are concerned the bank, rescued by France and Belgium in 2008, needs another bailout.
Belgium's Finance Minister Didier Reynders said the two states, both Dexia shareholders, would do all that was required to support their banks.
"Whether it is Dexia or another, we are following the situation day-by-day," Reynders told reporters on arriving at the Eurogroup meeting in Luxembourg, Reuters reported.
"To help the banks ... the first thing to do is to help Greece. If you resolve the Greek problem you are a long way along the path," he said, adding that Dexia was not among the most troubled banks in the continent.
Meanwhile, Bank of France Governor Christian Noyer said he's "open" to the idea of using borrowed money to bolster the European Financial Stability Facility, the euro area's rescue fund.
"It would be unrealistic to expect an increase in the EFSF itself," Noyer said in a speech today in Tokyo, according to Bloomberg News. "But, I am personally open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity."
Some believe help for Europe's troubles may come from the European Central Bank in the form of a decrease in borrowing costs.
Eleven of 52 economists surveyed by Bloomberg forecast the central bank will cut its 1.5 per cent benchmark rate this week, while the remaining 41 forecast no change.
The greenback is benefitting from the concern, rising 0.62 per cent against a basket of major currencies today.