European shares fell sharply today and went into reverse after two days of gains over concern about possible euro zone debt contagion.

Mounting concern over the possibility of a Spanish bail-out dealt market sentiment a sharp blow.

New figures show Spanish banks borrowed record amounts - totalling €316 billion - from the European Central Bank in March. This is twice the previous month's total.

Spain's cost of borrowing had begun to climb towards 6%. Madrid's IBEX felt the pressure and sank 3.5% to a three-year low.

Yields on the country's 10-year bonds rose and the cost of insuring Spanish debt against default hit 500 basis points for the first time, as record borrowing by its banks from the European Central Bank underscored fears about its finances.

Other European stocks suffered as a result. Italy's FTSE Mib index was down 3.4%, the CAC in Paris was 2.5% lower while the DAX in Frankfurt fell 2.4%.