UK stocks : Euro Stock 50 down 3.1%
The STOXX Europe 600 Banking Index was the worst-performing sector, falling 3.1 percent with Italian banks such as Intesa and Unicredit - which own large amounts of Italian government debt - tumbling 9.1 and 8.5 percent, respectively.
Spooked by the steepness of the fall, investors rushed out to buy put options - which give the right to sell the index at a pre-set price in the future, thus protecting against or simply betting on a fall in the market.
Implied volatility on the euro zone index - a crude barometer of investor risk aversion, based on how much people are willing to pay for options - surged 21.5 percent to new 2013 highs, though at 25.90 points it was still some way below last year's peak of 38.31 points.
Investors also sought refuge in sectors which earn most of their profits outside the euro zone and should thus be less affected by any crisis there.
Within those, Simon Maughan, strategist at Olivetree Securities, recommended focusing on stocks which have underperformed so far this year and those which pay dividends.
"If you look at the relative performance of Energy, Basic Resources and some Industrials, they are outperforming markedly," he said. "Hiding out in these sectors, as well as utilities and some telcos, is the way to lose as little money as possible in
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