The FTSE 100 Index was down 39.3 points at 5737.8 after figures revealed the Spanish economy shrank 0.3 per cent over the three months to the end of March, confirming its second recession in three years.
Today's fall means London's leading shares index has dropped 30 points, or 0.5 per cent, over the course of the month.
Adding to the worries, ratings agency Standard & Poor's downgraded 11 Spanish banks, including Santander and BBVA, after downgrading Spain to just three notches above junk last week.
Some analysts believe Spain will need to seek a bailout from the European Union as it struggles with 24.4 per cent unemployment and a deficit of 8.5 per cent as of the end of 2011, which it must reduce to 3 per cent in 2013.
France's Cac-40 and Germany's Dax were down 1.6 per cent and 0.6 per cent respectively.
The Dow Jones Industrial Average was 0.3 per cent lower as the London market closed after US consumers spent more cautiously in March, while a regional survey showed business activity fell to its lowest level for more than two years.
The worries over the eurozone saw the pound hit a 22-month high against the euro at 1.23. But sterling was down against the dollar at 1.62 after the greenback was seen as a safe haven on currency markets.
The uncertainty hit some financial stocks with investment management firm Man Group falling 3 per cent or 3.5p to 103.5p ahead of its first quarter results tomorrow. Man's stock has fallen around 20 per cent since the start of the year.
Retail stocks came under pressure after investment bank Morgan Stanley cut its rating on the sector to 'in line' from attractive.
Marks & Spencer fell 4.1p to 357p, Next was down 29p at 2929p, while outside the top flight Dixons Retail shed 0.2p to 17.8p and Halfords dropped 0.2p to 275.1p.
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