LONDON — World stocks slid and the euro dropped to a two-month low against the dollar Tuesday as investors fretted over Ireland's political turmoil following the government's request for a bailout and after North Korea's artillery attack on South Korean territory.
In Europe, the FTSE 100 index of leading British shares closed down 95.55 points, or 1.8 percent at 5,581.28 while Germany's DAX tumbled 117.05 points, or 1.7 percent, to 6,705. The CAC-40 in France ended 94.47 points, or 2.5 percent, lower at 3,724.42.
In the U.S., the Dow Jones industrial average was down 164.95 points, or 1.5 percent, at 11,013.63 around midday New York time, despite encouraging U.S. economic growth figures, while the broader Standard & Poor's 500 index dropped 18.48 points, or 1.5 percent, to 1,179.36.
Sentiment, already downbeat as Europe's debt crisis shows few signs of abating, was hit further by news that North Korea bombarded the South Korean island of Yeonpyeong, near their disputed western border, setting buildings ablaze and killing at least two marines, according to South Korean officials
"As if all of the European sovereign issues weren't enough, and they are, markets were further roiled as North Korea, with impeccable timing, decided to show its military might," said Jennifer Lee, an analyst at BMO Financial Group.
Geopolitical tensions prompt investors to rein in risky trades, such as stocks, and pile into what are widely considered to be safer harbors for their cash, such as the dollar, the Swiss franc and gold.
Continuing to weigh on sentiment is the fear that Europe's debt problems have not been solved by the Irish government's decision to ask for a financial bailout from the European Union and International Monetary Fund.
Experts said the bailout, which is expected to amount to around €90 billion ($123 billion), has done little to shield other heavily indebted countries from a potential collapse in investor confidence.
Portugal and Spain are considered the next nations most vulnerable to market turmoil after the rescue of Greece and Ireland. Spain is the big worry for EU policymakers because it accounts for around 10 percent of the euro-zone economy, in contrast to Greece, Ireland and Portugal, which account for less than 2 percent each.
"Bailing out weaker partners is fast becoming seen as little more than strapping a band-aid on a gaping flesh wound," said Andrew Wilkinson, senior market analyst at Interactive Brokers.
Stock markets in the so-called periphery were battered Tuesday, with Spain's Ibex closing down 2.8 percent down and Portugal's PSI 2.1 percent lower. Ireland's main ISEQ index slid another 2.9 percent.
Investors are also worried that the activation of the bailout will not be as smooth as hoped, as Ireland's premier Brian Cowen fights for his future. Lawmakers in his own party have mounted a rebellion to try to oust him, an effort that could trigger a snap election and delay a massive EU-IMF bailout of Ireland.
On Monday, Cowen pledged to call elections early next year if an austerity budget is passed. His announcement was triggered by the decision by the Green Party to withdraw its support for the government, even though it pledged to back the 2011 budget, due to be unveiled on Dec. 7.
Worries over Ireland and possible contagion, coupled with the heightened geopolitical tensions, hit the euro hard — by late afternoon London time, the euro was down 1.8 percent at $1.3377, just above its earlier intra-day low of $1.3373, its lowest level since September 24.
That means the euro has fallen over four cents over a day, since an early rally to a high of $1.3786 following the Irish government's request for financial help.
The euro's losses were broad-based. It was down 2.6 percent on the day at 110.78 yen and 0.9 percent weaker against the British pound at 84.60 pence.
Reports of North Korea's attack on its neighbor came as Asian trading was drawing to a close. South Korea's Kospi closed down 0.8 percent at 1,928.94.
Elsewhere, Hong Kong's Hang Seng index tumbled 2.7 percent to 22,896.14 and China's Shanghai Composite Index shed 1.9 percent to 2,828.28 amid expectations Beijing will take more steps to cool inflation and possibly growth. Japan's markets were shut for a national holiday.
There was muted reaction to the news that the U.S. economy grew by more than previously predicted during the third quarter of the year. The Commerce Department reported that the world's largest economy grew at an annualized rate of 2.5 percent, up on the previous estimate of 2 percent.
Analysts said Wednesday would likely be a volatile day as traders on Wall Street look to square up positions before they head off for the Thanksgiving break.
In the oil markets, benchmark crude for January delivery was down 78 cents to $80.96 a barrel in electronic trading on the New York Mercantile Exchange.
AP Business Writer Kelvin Chan in Hong Kong contributed to this report.