The eurozone debt crisis deepened today, with the euro plunging, surging interest rates hitting Italy and a warning that investors might now begin to desert rescue risks Portugal and Spain.

The euro fell under 1.30 dollars for the first time since mid-September to 1.2999 dollars in the face of persistent fears an Irish bailout will prove unable to shield other vulnerable eurozone from untenable bond market tension.

Upward pressure intensified on 10-year borrowing rates for countries seen at risk of needing a rescue after Greece and Ireland, with particular attention focused on Spain as the size of its economy puts it in a far bigger problem category

The borrowing rate for Spain at one point rose above 5.50 percent from 5.46 percent late yesterday and for Portugal to 7.072 percent from 7.0 percent.

The gap between Spanish and benchmark German borrowing rates widened to 3.0 percentage points, an all-time high.

Italy too was under pressure, with the spread between its 10-year rates and those of Germany coming to 2.0 percentage points, likewise for the first time.

Italian bond yields jumped to 4.687 percent from 4.638.

"Objectively, on the basis of Italian fundamentals, the reaction seems excessive," said Marco Valli, an economist with UniCredit bank.

"But the market is panicking, which could mean that the eurozone crisis of condfidence has entered a more dangerous phase," requiring possible intervention by the European Central Bank.

European stock exchanges meanwhile wobbled in morning trading, with the banking sector hurt by continuing uncertainty over the financial fate of the eurozone.

Markets have given "a big thumbs down to the steps announced by the European authorities at the weekend," said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ in London.

In addition to approving an 85-billion-euro (111-billion-dollar) rescue for Ireland, European Union ministers outlined measures under which sovereign debt could eventually be re-structured, signalling that bondholders may have to bear some of the costs of future bailouts.

"The poor bond market reaction is an indication that the market is worryingly losing confidence in the European authorities' ability to deal effectively with the eurozone sovereign debt crisis.

"It is much harder to regain confidence than lose it," Hardman added.

Financial analysts are now warning that Spain is at high risk of eventually needing help to finance its debt and thereby overloading EU safety nets. Spanish authorities insist they are in no need of such assistance.

At Pimco, a big fund heavily invested in government bonds, chief executive Mohamed El-Erian, said: "My concern is that indecisive management of problems in Greece and Ireland might lead investors to sell sovereign bonds issued by peripheral (eurozone) states as a preventive measure."

Pimco, a subsidiary of the German insurance group Allianz, had more than 1.2 trillion euros (1.57 trillion dollars) in assets under management on September 30.

He told the German newspaper Handelsblatt: "That would increase refinancing costs and problems in those countries.

"The longer the uncertainty over how investors will participate in losses lasts, the greater the probability that they withdraw from the market" for government bonds, El-Erian said.

At CitiFX, a branch of Citigroup, analyst Valentin Marinov said the fall of the euro "signals that investors remain more focused on potential contagion to other eurozone countries than they do the situation in Ireland."

"A failure from the euro to rally on this development (the Irish rescue) suggests investors do not believe the package goes far to averting strains in countries such as Portugal and Spain."

Capital Economics analysts said that the details of the Irish rescue had "hardly soothed" investor nerves.

"We do not expect the upward pressure on peripheral yields to relent any time soon, which would keep downward pressure on the euro," they said.

Questions about public finances in France, generally seen as one of the healthier eurozone countries despite a burgeoning public deficit, have also surfaced, prompting vigorous assertions from Paris authorities that such concerns are unfounded.

The government's chief spokesman on Tuesday said the country foresaw "no risk" that its top AAA credit rating will be downgraded.

Finance Minister Christine Lagarde had rejected on Monday the tenor of a headline in the Journal du Dimanche newspaper that read: "Financial crisis: France threatened."

She hit back: "To say that France is threatened makes headlines ... but I think it is economically unsound."

She said: "When I look at the interest rate and risk curves, when I consider the rates at which France is financing itself, we are at the head of the pack, we have the lowest interest rates."