LONDON — World markets slumped Tuesday as investors waited to see if Ireland will request a financial rescue package from its partners in the eurozone and amid fears that bailed-out Greece is not doing enough to meet its rescue package obligations.
In Europe, the FTSE 100 index of leading British shares was down 88.15 points, or 1.5 percent, at 5,732.26 while Germany's DAX fell 54.31 points, or 0.8 percent, at 6,735.86. The CAC-40 in France was 60.53 points, or 1.6 percent, lower at 3,803.71.
In the U.S., the Dow Jones industrial average was down 66.15 points, or 0.6 percent, at 11,135.82 soon after the open while the broader Standard & Poor's 500 index fell 9.3 points, or 0.8 percent, at 1,188.45.
Investors' attention was well and truly focused on Brussels, where a crucial meeting of the finance ministers of the 16 countries that use the euro is due to take place, with Ireland's debt crisis the sole talk of the town.
Confirmation that Irish officials are in discussions with the European Union and the International Monetary Fund have increased speculation that the country's government will perform a major about-turn and formally request a rescue package.
For the past few days, as the market pressure on the country has become increasingly acute, government ministers have insisted that the country didn't need any money as it's fully funded until the middle of next year. They have also tried to convince markets that Ireland's fiscal problems are not the same as Greece's, since the Irish woes are rooted in the near-collapse of its banking system as opposed to public overspending, as in the case of Greece.
That's certainly the approach the EU's monetary affairs commissioner Olli Rehn is trying to relay ahead of the meeting, as he insisted that the country is well funded until next year.
"This is a very serious problem for the bank sector in Ireland," Rehn said.
The biggest worry confronting the finance ministers is that Europe's debt crisis has entered a potentially dangerous spiral, whereby the markets pick off one country after another. Under this domino effect, Portugal would be next, followed by even-bigger Spain.
The hope is that an Irish package — reported to be around €80 billion ($110 billion) — would calm the markets and ease the pressure on the euro currency itself.
Analysts remain skeptical that an Irish deal will put an end to the crisis that has engulfed the eurozone over the last year. If recent history is any guide, it's more than likely that another country could be targeted.
"The current situation goes beyond this being just an Irish problem and, if anything, it exposes the instability at the heart of the monetary union," said Neil MacKinnon, global macro strategist at VTB Capital. "The financial markets recognise this and are alert to a 'domino effect' taking place."
Stirring in the background again are concerns over Greece, which was bailed out in May to the tune of €110 billion from its partners in the eurozone and the IMF. The Austrian government is baulking at giving the country money it has promised because the Greek government has not raised as much as money in taxes as it said it would when the deal was agreed.
Jeremy Batstone-Carr, director of private client research at Charles Stanley, thinks that there's a real chance that Athens will not receive the next tranche of funds — €6.5 billion — it is due at the end of the month if the IMF terms are applied strictly.
"It is impossible to overstate the extent of such a catastrophe for the financial markets," he said. "It seems likely that the ripple would spread swiftly throughout the banking and even non-financial sectors and few parts of the world would emerge unscathed."
Ahead of the meeting, some stability has emerged in both the bond and currency markets, with the euro recovering its poise somewhat after a dire week — by mid afternoon London time, the euro was flat at $1.3584. As recently as Nov. 4, the euro had been trading at a multi-month dollar high of $1.4281.
Developments in China provided a gloomy backdrop to markets Tuesday after the country's benchmark Shanghai Composite Index dropped 4 percent to a one-month low of 2,894.54. The index is down 8 percent over just three trading sessions amid fears that Chinese monetary authorities will raise interest rates to cool a property boom and dampen inflation. Rumors that price controls may also be introduced have added to investors' concerns.
Better-than-expected German economic news helped solidify the euro. The ZEW institute said its main gauge of investor sentiment rose in November to 1.8 from minus 7.2 the previous month, meaning investors think that conditions are more likely to improve than deteriorate over the coming six months. The rise was ahead of the market consensus of a more modest improvement to minus 4.
Earlier in Asia, South Korea's Kospi closed down 0.8 percent at 1,899.13 after the Bank of Korea raised its key interest rate for the second time in four months after inflation burst above 4 percent in October. It also adopted a more aggressive stance, removing the wording "under the accommodative policy stance" from its statement, suggesting that interest rates will continue to rise to more normal after two years of super-low borrowing costs.
Japan's Nikkei 225 stock average lost 0.3 percent to 9,797.10. Hong Kong's Hang Seng slid 1.4 percent to 23,693.02 while Australia's S&P/ASX 200 gained 0.3 percent to 4,700.30.
Benchmark crude for December delivery was down $1.25 at $83.61 a barrel in electronic trading on the New York Mercantile Exchange.