Over the weekend, Spain’s opposition Socialist Party called on Prime Minister Mariano Rajoy to resign over a corruption scandal.

Meanwhile, former Italian prime minister Silvio Berlusconi, one of the top candidates in this month’s general election, is seeing a resurgence in popularity which many fear could threaten the country’s reform programme.

Yields on peripheral debt rose in response, with Spanish 10-year government bond yields up 16bps to 5.38% on Monday, while equivalent Italian yields were 8bps higher at 4.41%.

The FTSE 100 was down 1.58% by the end of trading to 6,246.84, dragged down by Aviva falling 4.4% and RBS down 3.49%.

Its European counterparts also took a hit with the French Cac 40 down 3.01% to 3659.91 and the German Dax falling 2.49%. The Dow Jones dropped by 0.93% to finish trading at 13,880.08.

The euro also bore the brunt of investor fears, falling 0.36% against the dollar to $1.35. But sterling gained ground against the single currency, up 0.17% to €1.17.

Yesterday’s pull-back comes after investors poured more money into risk assets last week on the release of better-than-expected global data.  

US factory activity quickened in January and hiring increased, while a eurozone business activity survey suggested the worst of the region’s downturn may be over.

On Sunday, China provided a further boost by reporting its services sector had grown for a fourth straight month in January.