Concern over the eurozone debt crisis has continued to weigh on financial markets.
The euro fell for the sixth day against the US dollar, to $1.2688, as an interim Greek government was sworn in to steer the debt-ridden country into repeat elections in June.
European and US shares also declined, led by financial stocks.
Shares in Spain's Bankia dropped 15%, which reflects broader fears about the health of the Spanish banking sector.
Shares in French banks like Societe Generale and BNP Paribas dropped more than 3%.
In Germany, Deutsche Bank fell 1.9% and Commerzbank dropped 1.4%. The stock exchange Deutcshe Boerse was down more than 7%.
UK banks also dropped, with Barclays down 3.8% and Royal Bank of Scotland declining 3.7%.
The Spanish government also had to pay sharply higher rates of interest to borrow money on the bond markets, raising investor fears that the worst-case scenario - a bailout - will eventually be needed.
And ratings agency Moody's cut the credit ratings of 16 Spanish banks, a further blow to a country that is struggling to deal with the bad debts of its banking sector.
'Start a fire'
Moodys also downgraded the credit ratings of four of Spain's regions - Catalonia, Murcia, Andalucia and Extremadura - and warned there was only a "low probability that the regional governments will be able to meet the 2012 deficit target".
Greece was also downgraded, to CCC from B-, by rival agency Fitch, which cited political uncertainty over the country's commitment to its last bailout and possible exit of the eurozone.
With Greece facing elections and France under newly-elected President Francois Hollande refusing to sign a pact to force nations to rein in debt, many feel that Europe is in disarray.
In New York, European Commission president Jose-Manuel Barroso told the UN that European Union member states and institutions would "do whatever is necessary" to overcome the crisis.
"We need to stay the course, without being blind to an evolving economic situation," he said. "Fortunately, the rule book allows for adaptability while remaining firmly focused on sustainability and ensuring sound public finances."
Writing in The Scotsman newspaper , Alistair Darling, who was the previous chancellor, said the impact of a Greek exit could be severe.
"A Greek exit could start a fire that would spread all along the Mediterranean as other countries would come under pressure," he wrote. "The repercussions, particularly in the banking sector, could cripple Europe for years to come."
The UK government has said the Treasury has been drawing up contingency plans in the wake of growing concern about the future Greece's membership of the euro.
A Downing Street spokeswoman confirmed the National Security Council has been involved in the plans "for some time".