European stocks plummeted on Tuesday after ratings agency Standard & Poor's downgraded Greece's sovereign debt to junk status and cut Portugal's long-term credit score, fuelling fears of a spreading debt crisis.

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AFP - European stock markets and the euro sank on Tuesday amid growing fears that the Greek debt crisis will spread to other weak eurozone countries, with Portugal now in the firing line.



"It can really be summed up in one word -- contagion," said CMC Markets analyst Michael Hewson.



The markets fell after Standard & Poor's, a leading international ratings agency, downgraded Greek sovereign debt to junk status and cut Portugal's long-term credit score by two notches.



The London stock market dived 2.61 percent, the Frankfurt DAX sank 2.73 percent and the CAC 40 in Paris plunged by 3.82 percent. The Lisbon stock market sank by 5.36 percent and Athens plunged six percent.



The euro, which has been rocked for months over the debt drama in Greece, plunged again against the US and Japanese currencies, falling to 1.3250 dollars from 1.3378 dollars a day earlier and to 123.46 yen from 125.72 on Monday.



Greece urged European governments to stop dragging their feet and quickly activate a multi-billion-euro bailout, warning that the country could no longer raise funds and desperately needed the money to pay debt due in three weeks.



"Given our inability to access the markets, by (May 19) the procedure must be complete, agreed, signed and the release of funds initiated from the IMF and our European peers," Papaconstantinou told Socialist deputies.



The eurozone country was hit by a new credit downgrade as S&P lowered its long-term sovereign credit ratings to BB+ from BBB+ and its short-term ratings to B from A-2.



"We believe that the government's policy options are narrowing because of Greece's weakening economic growth prospects, at a time when pressures for stronger fiscal adjustment measures are rising," S&P said.



The agency also downgraded Portugal's long-term credit rating to "A-" from A+" and its short-term rating to "A-2" from "A-1", saying fiscal and economic structural weaknesses put it in a "weak position" to fix public finances.



The two eurozone countries also suffered on the bond market, where the interest rate demanded by investors to hold Greek and Portuguese debt rose sharply.



The yield on Greek 10-year bonds surged to 9.73 percent -- a rate worse than some emerging economies -- and the return for Portuguese papers rose to more than 5.6 percent from 5.197 percent.



"Greece's fiscal problems, and the market's lack of confidence in dealing with them, are spilling over to other countries seen as having a kindred fiscal spirit," said Patrick O'Hare at Briefing.com.



Greece has asked the European Union and International Monetary Fund to activate a three-year rescue package worth up to 45 billion euros (60 billion dollars) in the first year.



However, the bailout is shrouded in uncertainty, with Germany insisting that Athens must first demonstrate how it plans to get its public finances in order before it gets the money.



"It is still the uncertainty surrounding this Greece bailout," added Spreadex trader David Rees.



To compound matters, the EU/IMF rescue package may not be enough to resolve the wider problem of debt, according to VTB Capital economist Neil MacKinnon.



"The markets are worried that any fresh EU/IMF package to cover Greece’s funding needs in the short term are not enough to resolve the problem of worsening debt sustainability," MacKinnon told AFP.



"Double digit interest rates and triple-digit debt levels are a recipe for debt restructuring and eventual default."



The Greek debt crisis also unnerved Wall Street, with the Dow Jones Industrial Average sliding 1.24 percent, Nasdaq shedding 1.44 percent and the Standard & Poor's 500 index declining 1.57 percent).



In Asia, risk-averse investors mostly shrugged off upbeat earnings reports and stronger-than-expected growth in South Korea's economy to take profits Tuesday after the previous day's strong gains.



Markets also awaited the outcome from the US central bank's two-day policy-setting meeting, which was to begin Tuesday, for its assessment for recovery in the world's largest economy.



Hong Kong fell 1.51 percent, Shanghai tumbled 2.07 percent, while Tokyo picked up from earlier lows to end 0.42 percent higher.





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