European Commission President Jose Manuel Barroso has launched a fierce attack on financial market speculation.
He told the European Parliament in Brussels that the Commission could move quickly to further regulate markets if they acted irresponsibly.
'The Commission will do whatever necessary to ensure that financial markets are not a playground for speculation,' Mr Barroso said, adding that financial institutions should not forget what they were created for.
He was speaking after ratings agency Moody's warned that it may downgrade Portugal's sovereign debt within three months, sending stock markets and the euro lower.
The euro slumped to the lowest level for over a year earlier this afternoon as repercussions from the Greek debt crisis showed signs of spreading across the euro zone. It hit $1.2807 in early afternoon trade - a level last seen on March 12, 2009. The euro later recovered to just under $1.2890.
Moody's said it had placed Portugal's Aa2 government bond ratings 'on review for possible downgrade', due to its worsening public finances and poor growth prospects. The warning came a week after another international ratings agency, Standard & Poor's, had downgraded Portugal's debt. A lower rating usually makes it more expensive for a country to borrow money on international markets.
Meanwhile, borrowing costs for some euro zone countries continued to be high. This evening, the yield on Greek 10-year debt was almost 10.6%, while Portugal's equivalent was 6.16%. Ireland's 10-year bonds had a yield of 5.569%.
Spain won't need financial bailout, says Rehn
Euro zone policymakers and the head of the IMF warned of looming financial contagion today unless a euro zone debt crisis is stopped in Greece, as nervous investors fled to the safe haven of the dollar.
Greek public and private sector workers shut down airports, tourist sites and public services in a general strike and tens of thousands demonstrated in Athens against harsher austerity, accepted by the government as the price for a €110 billion EU/IMF bail-out on Sunday.
See how the stock markets fared today here
Read more on the protests in Athens here
German Chancellor Angela Merkel told parliament Europe's fate was at stake in the most serious crisis in the single currency's history, and other euro zone countries could be hit unless the rescue for Greece succeeds.
European Monetary Affairs Commissioner Olli Rehn said it was vital to stop the crisis spreading beyond Greece. 'It's absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole,' he said.
Merkel, whose foot-dragging many analysts have blamed for aggravating the Greek crisis, told parliament the success of the rescue package would determine 'nothing less than the future of Europe - and with it the future of Germany in Europe'.
She made his comments during a debate on approving Berlin's €22 billion contribution to the emergency loans for Athens despite hostility among the German public. Without the aid, a chain reaction threatened to destabilise the European and international financial system, she said.
European Central Bank governing council heavyweight Axel Weber gave a similar warning in a statement to parliamentarians, saying that a Greek default would pose a substantial risk to the stability of European monetary union and the financial system.
'There is a threat of serious contagion effects for other euro zone countries and increasing negative feedback effects for capital markets,' he said.
The head of the International Monetary Fund acknowledged the risk of the debt crisis spreading from Greece to other European countries but said he saw no real threat to the big euro zone states such as France and Germany.
'There is always a risk of contagion,' Dominique Strauss-Kahn said. 'Portugal has been mentioned, but it is already taking measures and the other countries are in a much more solid situation, but we should remain vigilant,' he said.
He criticised the 15 other euro zone governments for charging Greece a 5% interest rate on the loans, largely at Germany's insistence, saying they should have lent at the same rate as the IMF, which is more than half a point less.
Seeking to calm markets, Rehn said Spain did not need an aid mechanism of the kind created for Greece and he was not going to propose one. But he also said the deficit levels of all EU states were 'worryingly high'.
Despite official denials, many economists are convinced that Greece will have to restructure its debt, making private investors take a share of the pain.
Spain's prime minister, Jose Luis Rodriguez Zapatero, was forced to dismiss a market rumour yesterday that his country would soon ask for €280 billion in aid. Spain generates nearly 12% of the euro zone's output, almost five times more than Greece.
Concern that Greece's government will be unable to implement all the deficit-cutting measures agreed with the EU and IMF because of potential social unrest is one of the drivers of the euro zone turmoil.
Prime Minister George Papandreou presented an austerity bill to parliament yesterday which foresees €30 billion in new savings through deep cuts in wages and pensions and a hike in sales tax.
