European shares down 1.7 percent

Investors dumped the euro, peripheral euro zone government debt and European shares on Tuesday as officials struggled to contain fears that the euro zone debt crisis was spreading to Italy and Spain.          

In a bid to keep Italy and Spain from the same fate as Greece, Portugal and Ireland, euro zone finance ministers promised on Monday cheaper loans, longer maturities and a more flexible rescue fund.  

But they said new measures would be announced "shortly" without setting a deadline, and for the first time declined to rule out the possibility of a selective default by Greece to make its debt mountain more sustainable.            

 Markets came under further pressure after International Monetary Fund Managing Director Christine Lagarde failed to comment specifically on resolving Greece's debt problems and the Dutch Finance Minister said a selective default for Greece was no longer being excluded.  

 "Italy and Spain have been thrown into the mix and they are far bigger in magnitude than Greece, Ireland and Portugal. This could be a true systemic crisis," said Andrew Lim, analyst at Espirito Santo in London.         more