• Moody's changes outlook on AAA ratings for Germany, Luxembourg and the Netherlands
  • China manufacturing improves, but strength and pace of growth remain a concern
  • Spain tests market with short-term Treasury bill sale
  • German economic data shows weakness in private sector

1540 BST: Record low

Italy's FTSE MIB has fallen to a eurozone record low 12,299.99 after a 3 percent slide that yesterday's ban on short-selling has failed to prevent. At the same time, Italy's five-year bond yields have surged to 5.01 percent, the highest since early January. Benchmark 10-year bond yields are trading at 6.51 percent.

1455 BST: An interesting controversy

... to keep us occupied as the market-moving news seems to have dried up. Germany's deputy economy minister Philipp Rosler is getting it from all sides this afternoon after expressing the (not irrational) view that Greece's efforts to meet the terms of its €240bn have been anything but a complete success. He even went as far as to say a Greek exit from the single currency had "lost its horrors".

Rosler is now being accused of "reckless and unprofessional" behaviour by senior members of the ruling FDP/CDU coalition in Germany while political rivals are calling for Angela Merkel to dismiss him from his brief.

1410 BST: US data tone matches Europe

Manufacturing data from the United States is likely to put downward pressure on European shares into the close today. The Markit PMI showed US manufacturing grew at is slowest pace in nearly two years this month as the benchmark index fell to 51.8 from 52.5 in June. The figures still signal expansion, but the pace of growth is likely to add a bearish influence to today's trading.

1145 BST: Spain default risk

Credit default swap costs for Spain have risen 16 basis points this morning, or €16,000 for €10m in debt, to a eurozone record 640 basis points, according to Markit. Spain's benchmark 10-year bonds are trading at an effective yield of 7.6 percent, again a record-high, as investors appear convinced it will need to arrange a full-scale EU bailout.

1040 BST: Greece recession

New prime minister Antonis Samaras told lawmakers that Greece's recession may be more severe than the 7 percent figure many are anticipating. He did, however, suggest the economy will begin the slow process of recovery (from five consecutive years of recession) in 2014.

0945 BST: Spanish bill sale

Spain's planned three-month Treasury bill sale comes in at 2.434 percent, only marginally higher than the 2.362 percent it paid at the previous auction in June. The six-month portion of the sale priced to yield 3.691 percent compared to 3.237 in June.

On face, both figures are hugely expensive funding, in that they represent more than two times the 10-year costs associated with Germany but only guarantee cash until the end of 2012. Furthermore, the bulk of interest will likely have come from Spain's domestic banks.

That said, the costs base hasn't risen dramatically since the previous sale and, given the headline risk Spain has had to endure over the past 72 hours, this auction has to be seen as a mild positive.

0940 BST: Dutch bond sale

The Netherlands wrapped up the first bond sale after last night's ratings outlook change by Moody's with an €875m auction of 2014 bonds that priced to yield 0.03 percent. A further €885m was raised with an "off-the-run" sale of bonds maturing in 2028 at a yield of 2.181 percent.

0925 BST: Spanish yields on the rise

Spain's benchmark 10-year bonds are trading at a Eurozone record high 7.57 percent this morning as Spanish media reports surface of crisis talks that could lead to a full-scale EU bailout that could cost taxpayers as much as €300bn.

0900 BST: Eurozone economy weakens

Following on from the disappointing Markit PMI readings in Germany, the composite reading of manufacturing and service-sector activity for the 17-member Eurozone is equally grim: the "flash" reading for July comes in at 46.4, a shade below analysts' forecasts and unchanged from June.

Across the region, the manufacturing PMI was measured at 44.1, the lowest in more than three years, while the service-sector portion improved slightly to 47.6 (from 47.1 in June).

0850 BST: The Summer Vacation Eurogroup statement

Jean-Claude Juncker's office released this statement on last night's decision by Moody's to change the outlook on the triple-A ratings of Germany, The Netherlands and Luxembourg.

We take note of the rating decision of Moody's which confirms the very strong rating enjoyed by a number of euro area Member States, as supported by the sound fundamentals which these and other euro area countries continue to enjoy. Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole.

0830 BST: Weak German data

The first reading of manufacturing activity in Germany for the month of July is pretty grim: the "flash" reading of the Markit PMI is 43.3, 2 points below forecast and down from June's final reading of 45.0. The services portion of the PMI is also weak (49.7, below the 50 forecast) but marginally better than June's final 49.9 reading.

The Composite, then, adds up to 47.3, which is more than half a point lower than the 48.1 recorded in June and represents the third consecutive month of contraction for the engine room of the broader European economy.

Stocks have turned red following the figures, with the FTSE 100 swinging to a 0.1 percent loss and Germany's DAX now down 0.4 percent on the session. France's CAC-40 is also off by 0.1 percent on the day.

0820 BST: Spanish bond curve inverts

Yields on Spain's benchmark 5-year bonds have risen higher (at 7.44 percent) than Spain's 10-year yields (7.41 percent) for the first time this morning, suggesting investors are assigning a higher probability of a full EU-led bailout in the near-term.

Spain's short-term debt auction later this morning (a €3bn sale of 3-month and 6-month "letras", or Treasury bills) will give an early indication as to whether the bond market is assess Spain's risks accurately.

0810 BST: Good Morning!

Modest gains at the open for most of Europe's major share markets, including a tame 0.1 percent gain for Britain's FTSE 100 while the DAX added around 0.8 percent. Monday's short-selling bans in Italy and Spain look to have added support to the early open this morning, with Spain's IBEX rising 1.2 percent and Italy's FTSE MIB of 0.3 percent.

Asia helped set the positive tone - for equities at least - after a stronger-than-expected reading of China's manufacturing sector boosted shares in the early portion of the session. The first reading of the HSBC/Markit China PMI figure for June was the strongest since February (although still under the 50 mark that separates growth and contraction).

However, the myriad European woes contributed to a session-long downdraft of Asian shares, as the region's broadest measure, the MSCI Asia Pacific Index, fell more than 2 percent by the close of trading. The European single currency continued to find more sellers than buyers as it hovered around a two-year low of 1.21 against the US dollar.

Part of the pressure was applied by Moody's Investors Service late Monday when it changed the outlook on triple-A rated Eurozone members Germany, Luxembourg and the Netherlands to negative from stable as the seeping debt crisis threatens the financial strength of the region's strongest economies.

September bund futures fell around 20 ticks when trading kicked off this morning, taking the contract to 145.35 before falling below 145 shortly thereafter. Benchmark 10-year bund yields rose around 5 basis points to trade at 1.21 percent. The Netherlands will test the market this morning a 2bn sale of "off-the-run" bonds maturing in 2014 and 2028 later this morning.