The financial turmoil on the continent gathered pace on Friday after a key agency downgraded the credit rating of 16 Spanish banks, including the debt rating of Santander UK, a subsidiary of Banco Santander.
European markets suffered further losses after Moody's Investor Service downgraded the Spanish lenders.
The agency said the downgrade was due to financial challenges facing the Spanish economy, concerns over the Spanish government’s ability to prop up the bank, as well as exposure to bad debt from the country’s ailing property sector.
Following news of the downgrade, Santander UK moved to reassure its customers citing the fact that it was a "completely autonomous" subsidiary from its parent firm.
A spokesman for the UK bank, said: "money raised in the UK stays in the UK", adding that there would be no impact on its business.
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The downgrade of the Spanish banks comes amid ongoing concerns in the eurozone, with Spain likely to be dragged further into the maelstrom should the crisis in Greece fail to stabilise.
As Spain's woes deepened, investors continued to be troubled by political turmoil in Athens, where a caretaker government has stepped in to steer the debt-ridden country into repeat elections next month.
Jordan Lambert, trader at Spreadex, said the "environment is getting increasingly bleak" with Moody's downgrade of the Spanish banks adding to the "sour taste".
The FTSE 100 Index lost nearly 1%, while France's Cac-40 fell 1% and the Dax in Germany lost 0.5%. Spain's Ibex-35, however, rose 0.5%.
On Friday, David Cameron is scheduled to meet new French president Francois Hollande as they join world leaders in the US for a G8 summit, which is likely to be dominated by the eurozone crisis.