Move aside, PIIGS: Today, it's Britain's turn to shock the markets.
European shares took a hit after Britain said its economy shrank 0.5 percent in the last quarter of 2010. Economists had expected to see growth continuing at 0.5 to 0.7 per cent. Unusually harsh winter weather contributed to weak consumer spending, while construction and service sector output posted large declines.
The weakness fanned concerns over Britain's plans for spending cuts and prospects for the global economic recovery, while scepticism over the cost of recapitalising Spanish banks weighed on euro zone peripheral government bonds and Spain's stocks.
The pound dropped more than 2 cents to around $1.58 (U.S.). The euro retreated after hitting a two-month high against the dollar. Europe's FTSEurofirst 300 index fell 0.5 percent.
The International Monetary Fund also weighed in with concerns about Europe. It said Europe needs to strengthen its financial rescue fund to reduce the risk of renewed global instability, as U.S. tax cuts and buoyant emerging economies help drive the recovery elsewhere.
In particular, the IMF singled out European banks, which it said needed more stress tests. And it expressed concerns that the regional stability fund would be wiped out if a bigger economy needed to be bailed out.
U.S. stock index futures slipped 0.3 to 0.6 percent, indicating a weak opening on Wall Street, ahead of a two-day rate-setting meeting by the Federal Reserve.
Toronto investors, it doesn't look good for resource stocks today either.
Copper lost 2.5 percent while crude fell for a second straight day, down 1.7 percent, to trade below $87 a barrel.
Gold fell to its lowest in 10 weeks on Tuesday, putting the price on course for its worst monthly performance in 13 months as safe-haven demand evaporated and investors booked further profits on the 2010 rally. Spot gold traded at $1,327.38 an ounce.
In Asia, Tokyo's Nikkei average rose for a second straight session, up 1.2 percent on hopes of upbeat company earnings.
India's central bank raised interest rates a quarter of a percentage point to clamp down on inflation, which is running at about 8 per cent. It's the Reserve Bank of India's seventh increase since March.
Sonali Verma