Euro hits two-month low but shares recover amid Irish unrest

In London morning trade, the single currency dropped to US$1.3285 - the lowest point since September 22 - before rebounding back above US$1.33.

The Dublin market fell 0.60 per cent as investors awaited details on Ireland's latest public spending cuts due later in the afternoon.

Portugal, also seen at risk over its public finances, was jammed in a general strike against austerity measures.

Increasing concerns over the eurozone were highlighted today when the rate Spain must pay to borrow for 10 years jumped to above 5.0 per cent for the first time since 2002. It also reached a record wide gap above the key eurozone German rate - of 2.51 percentage points.

The Madrid stock market gained 0.41 percent in morning deals, reversing losses seen earlier Wednesday.

Markets are worried that Ireland's debt troubles will spread to Portugal and Spain, and are also concerned about tensions between the two Koreas.

Germany wants a new rescue mechanism for eurozone countries as from 2013 in a bid to ensure that private investors, not just taxpayers, bear part of the costs of bailouts.

The proposal has seriously rattled markets and also some other European governments, making for tough negotiations ahead of a summit of the bloc's leaders in mid-December.

With its banking system in dire straits and its budget deficit forecast to be 10 times the EU limit this year, Ireland became on Sunday the second eurozone member in six months to apply for a bailout after Greece.

"We have said that the stability of the euro as a whole must be guaranteed and therefore we will ... consider the appeal of Ireland positively," Merkel said today.