LONDON - Europe's main stock markets lost ground on Monday on news that Cyprus might tax bank deposits as part of a controversial international bailout.
In afternoon trade, London's benchmark FTSE 100 index of top companies had fallen by 0.56 percent to 6,453.31 points, Frankfurt's DAX 30 had shed 1.04 percent to 7,959.18 points and in Paris the CAC 40 had lost 1.12 percent to stand at 3,801.46.
Asian equities also fell heavily in earlier trade, as the mooted plan by Cyprus to tax bank deposits raised fresh concerns the eurozone debt crisis could reignite.
Elsewhere, Madrid's IBEX 35 shares index dived 2.21 percent and Milan's FTSE MIB sank 1.37 percent in value.
In opening trade in the United States, the Dow Jones Industrial Average gave up 0.34 percent to 14,464.70 points, the broad-based S&P 500, which last week appeared poised to break its all time record, declined 0.65 percent to 1,550.50 points and tech-rich Nasdaq Composite Index lost 0.66 percent to 3,227.52.
In foreign exchange activity, the European single currency plunged at one point to $1.2882 in Asian deals to the lowest point since December 10, 2012.
The euro later stood at $1.2930, down from $1.3075 late on Friday in New York.
Gold prices meanwhile rose to $1,599.50 an ounce on the London Bullion Market from $1,595.50 on Friday.
"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said CMC Markets analyst Michael Hewson.
Terms for a desperately-needed 10-billion-euro ($13 billion) bailout for Cyprus include a levy on all deposits in the island's banks.
Deposits of more than 100,000 euros will be hit with a 9.9 percent charge, and 6.75 percent for anything below that threshold. The proposal must still be approved by parliament.
"The dawn raid on the previously sacrosanct savings of depositors will draw unwanted attention to the struggling peripheral banks throughout the eurozone," added analyst Mike McCudden at online brokerage Interactive Investor.
"The move has sent a warning shot across the region and threatens to undo much of the work done over the past year to restore investor confidence.
He added: "The move has sent out entirely the wrong message to investors as they now take the reins in guiding the eurozone out of the mire."
Investors quickly sold shares in European banks, and in late afternoon trading, the Spanish bank Santander was off by 3.22 percent, UniCredit in Italy was down by 4.44 percent, BNP Paribas had lost 3.61 percent in Paris and Barclays Bank was down by 4.26 percent in London.
In Germany, Deutsche Bank had lost 2.51 percent.
The European Central Bank opened the door to possible amendments to the bailout deal however, arguing it was up to the Cyprus government to ensure the necessary financing.
"It's the Cyprus government's adjustment programme, not the troika's or any other government's," ECB executive board member Joerg Asmussen told a conference in Berlin. "If Cyprus's president wants to change something regarding the levy on bank deposits, that's in his hands. He must just make sure that the financing is intact," Asmussen said.
Cyprus is the fourth nation to fall victim to the eurozone debt crisis, which has already resulted in enormous EU/IMF bailout packages for Greece, Ireland and Portugal.
Back in June, meanwhile, Spain looked as if it too would need a rescue as the collapse of its banking system, largely down to a burst property bubble, forced the government into a corner.
Madrid however insisted that it was able to get by without a full rescue, seeking instead a credit line of 100 billion euros to help its banks.
In company news, Airbus, a unit of European aerospace giant EADS, announced it had received a record order of 234 medium-range A320-series jets worth $23.8 billion (18.2 billion euros) from the little-known private Indonesian carrier Lion Air.
Though now the world's largest order ever, and hailed by French President Francois Hollande as "historic", EADS shares shed 1.8 percent to 41.79 euros in afternoon trade on what some traders put down to profit-taking.