Stocks in Europe fell sharply as Portugal’s market borrowing rates briefly jumped to euro-era highs in the wake of the renewed bailout talk.

In Europe, the FTSE 100 index of leading British shares was down 17.57 points, or 0.3 percent, at 5,966.76 while Germany’s DAX fell 108.67 points, or 0.6 percent, at 6,839.17. The CAC-40 in France was 53.95 points, or 1.4 percent, lower at 3,811.63.

The losses weren’t just confined to Europe, though — on Wall Street, the Dow Jones industrial average was down 85.56 points, or 0.7 percent, at 11,589.20 soon after the open while the broader Standard & Poor’s 500 index fell 8 points, or 0.6 percent, to 1,263.50.

As stocks dropped, the yield on Portugal’s ten-year bonds rose nearly half a percentage point to 7.18 percent, before falling back to 6.94 percent on speculation that the European Central Bank was propping up Portugal’s bond market - buying Portuguese bonds helps lower the yield.

Despite the modest pullback, the costs Portugal is facing to service its debt is prohibitively high. Many think even at current rates that it’s unsustainable in the medium-term and that the country will have to join Greece and Ireland in getting massive financial help from its partners in the European Union and the International Monetary Fund.

A key test will be an auction of euro1.25 billion in three year and nine year bonds on Wednesday and how much Portugal will have to pay to get investors to effectively lend it money.

On Thursday, Spain and Italy are also scheduled to sell bonds and the big worry in Europe’s capitals is that Spain, in particular, will be dragged into the mire.

Monday’s market fluctuations follow a report in German newspaper Der Spiegel that France and Germany are pressing Portugal to tap a European rescue fund to keep the crisis from spreading to much-bigger Spain. Portugal denies it needs to do so but that doesn’t mean it won’t, if recent experience is anything to go by.

Analysts said there are distinct echoes of what went on with Ireland just a couple of months ago. Before Ireland was forced to accept a rescue from its partners in the European Union and the International Monetary Fund, there were numerous reports suggesting that Germany, in particular, was pressuring Dublin to take the funds to stop the crisis spreading. The Irish government also insisted it didn’t need any help before eventually accepting a 67.5 billion euros bailout.

“It therefore seems reasonable to suppose that events will move rapidly this week as the authorities work to put together a credible support mechanism,” said Simon Derrick, a senior analyst at Bank of New York Mellon. “A failure to do so would, of course, send an extremely negative message to the markets.”

Finance ministers of the 17 countries that use the euro are set to meet next Monday in Brussels.

The prevailing view in the markets is that Europe will be able to rescue Portugal but that emergency support for Spain would test the limits of the existing bailout fund, potentially putting the euro project in jeopardy if governments don’t put up more cash. Spain makes up around 10 percent of the euro zone economy, whereas Greece, Ireland and Portugal only account for around 2 percent each.

Against this backdrop, the euro is foundering — by mid afternoon London time, it was down modestly on the day at $1.29, meaning it has fallen around 5 cents so far this year.

“The big hurdle for the euro is government bond auctions in Portugal and Spain with rising peripheral yields doing little to help market confidence at the moment,” said Vassili Serebriakov, an analyst at Wells Fargo Bank.

Earlier in Asia, China’s Shanghai Composite index fell 1.7 percent to 2,791.81, while Hong Kong’s Hang Seng dropped 0.7 percent to 23,527.26. South Korea’s benchmark Kospi fell 0.3 percent to 2,080.81.

Financial markets in Japan were closed Monday for a national holiday. The Nikkei 225 stock average, Asia’s largest, rose Friday to a fresh eight-month high of 10,541.04.

Benchmark oil for February delivery was up $1.13 at $89.16 a barrel in electronic trading on the New York Mercantile Exchange.