By Simon Miller

European stock exchanges have closed down after a day of selling following remarks from the Spanish Central Bank.

Spain's central bank governor Miguel Ordóñez said that although the European Central Bank's Long-Term Refinancing Operation had bought the coutnry time, deficit cuts were needed.

In addition, he warned that commercial banks could require more capital if the "economy worsened more than expected".

As a result, Spain's credit default swaps edged towards the record 487 basis point seen in November last year while its 10-year government debt yielded 5.942%. Italy was also hit with its 10-year debt trading at 5.65% compared with Germany's 1.64%.

In a briefing note, Morgan Stanley commented: "The lending and money supply data out from the ECB in the last few weeks has continued to be weak and support our view that the LTRO has done little to change the underlying growth outlook in the Euro-zone."

The re-occurance of nerves over the eurozone led to sell-offs on European exchanges with the FTSE 100 closing down 2.2% at 5,595.55, while the CAC fell 3.1% in Paris and the DAX lost 2.5%. The Italian index, the FTSE MIB, dropped 5%.

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