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Updated: Jun 29, 2015 12:18 IST

Greece announced on Monday it will shut banks for a week and impose capital controls, pleading for calm after anxious citizens emptied ATM machines in a dramatic escalation of the country's debt crisis.



India’s benchmark BSE Sensex plunged 535.87 points, or 1.92%, to 27,275.97 in opening trade on Monday and Asian stock markets sank as Greece looked set to default on its debt repayment.

The benchmark 10-year bond yield was up 3 basis points at 7.85%, while the rupee was trading at 63.90 compared to its 63.64/65 close on Friday.



In the first market reaction to the growing risk of a Greek euro exit, the single currency tumbled in Asia on Monday morning. Stock markets fell sharply, with Tokyo, Sydney, Shanghai and Hong Kong each sinking more than 2% by Monday afternoon.



Greece’s banks will be closed until July 6 – the day after a referendum on bailout proposals – with a 60-euro ($65) limit on ATM withdrawals, but foreign tourists, a vital engine of the Greek economy, will be exempt from restrictions, said a decree in the official government gazette.



The drastic measures to protect Greece's banking system against the threat of mass panic came after the European Central Bank said it would not increase its financial support to Greek lenders, despite early signs of a chaotic bank run.



It capped a weekend of high drama that began with Prime Minister Alexis Tsipras's unexpected call for a July 5 referendum on creditors' latest reform proposals after bailout talks in Brussels collapsed.

"The more calmly we deal with difficulties, the sooner we can overcome them and the milder their consequences will be," a sombre-looking Tsipras said in a televised address. He promised bank deposits would be safe and salaries paid.

A man reacts as people line up to withdraw cash from an ATM outside a Eurobank branch in Athens, Greece. (Reuters)

In response, angry EU and IMF creditors rejected a request to extend the nation's bailout beyond its June 30 expiry date, sparking fears Greece could default on a key debt payment to the IMF due the same day and possibly crash out of the eurozone.With the prospect of Greece being forced out of the euro in plain sight, the common currency fell as much as 1.9% to $1.0955, its lowest in almost a month, and last stood down 1.4% at $1.1007.The Shanghai Composite Index fell 3.7% to 4,035.48 points despite China's surprise weekend interest rate cut. Tokyo's Nikkei 225 index shed 2.4% to 20,218.17 points.Hong Kong's Hang Seng lost 2.7% to 25,949.30 and Sydney's S&P ASX-200 was off 2.3% at 5,418.80. Seoul's Kospi dropped 1.4% to 2,061.00 and the euro slipped to $1.101 from the previous session's $1.116. The dollar declined to 123.15 yen from 123.89 yen.Against the yen, the common currency dropped more than 3% to 133.80 yen, a five-week low.US stock futures dived almost 2% at one point to hit a three-month low, and last traded down 1.6%.Gold prices gained 0.6% to $1,181.40 per ounce on safe-haven buying, while Brent crude oil futures fell 1.2% to $62.53 per barrel.Chinese shares were volatile and whipsawed between positive and negative territory, with the Chinese central bank's measures on Saturday to support the economy unable to calm jittery investors.The central bank simultaneously cut interest rates and reserve requirements for the first time since the global financial crisis in late 2008.The accelerating crisis has raised questions about whether Greece might withdraw from the 19-nation euro currency, a move dubbed Grexit."Even if a deal is somehow reached, the ability of Greece to implement agreed reforms is doubtful," said IHS Global Insight economist Rajiv Biswas in a report.Christopher Moltke-Leth, head of client trading at Saxo Capital Markets, said: "Asia is down because of a risk-off move in response to what's going on in Europe, in Greece."Investors are flocking to safer assets, staggered by uncertainty over the future of Europe, as Greece could become the first country to leave the currency bloc after a default."We are in uncharted territory and European equities, like all markets, will have a difficult time processing this," said Deutsche Bank managing director Nick Lawson."The market was not positioned for this going into the weekend and the lack of liquidity that has impacted both sovereign and corporate debt markets, as well as equity recently, will exacerbate things."Fear of an imminent default by Greece hit Greek banks, a major buyer of Greek government bills, triggering bank runs over the weekend and forcing the Prime Minister to announce a bank holiday and capital controls.Some investors, however, are pinning their hopes on the possibility that Greek voters will back the creditors' bailout terms in next weekend's referendum, returning Athens to the negotiating table, despite Tsipras urging a no vote."Right now the surprise is that the euro is not weaker. The logic may either be that the Greek government will come back to the negotiating table or that it will not survive long, if 'Yes' prevails contrary to their recommendation," said Steven Englander, global head of G10 FX Strategy at CitiFX in New York.Conspicuous by its absence so far from this year's Greek drama has been contagion to other "peripheral" euro nations' government bond markets as other European banks have limited exposure to Greece.Any speculative selling of debt of such countries as Italy, Spain and Portugal will also likely be countered by the European Central Bank, which started buying euro zone sovereign debt from the markets in March to shore up the economy.

Read: How much debt-ridden Greece owes to international creditors