Markets across Europe have dropped after official figures revealed the Spanish recession has deepened at a "significant pace" in the third quarter.
At the close the FTSE 100 was 1.56% down, Spain's Ibex 3.92%, France's Cac 2.82%, Italy's MIB 3.29% and Germany's Dax down 2%.
The slide worsened as the day progressed and followed the Bank of Spain's description of the nation being in a "deep recession".
It also prompted a climb in the Spanish 10-year bond yield rate to above 6%, and comes just hours after mass arrests of protesters in Madrid.
"Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels," the bank said in a monthly report.
The eurozone's fourth largest economy tumbled into recession in the last quarter of 2011, less than two years after emerging from the previous downturn, according to official data.
In the second quarter of this year the economy posted a 0.4% contraction - after showing declines of 0.3% in the previous two quarters - and the unemployment rate hit 24.6%.
Youth unemployment remains far above the general jobless level.
Spain's government is expecting an economic decline of 1.5% this year, and another 0.5% in 2013, but even those grim figures are considered optimistic by many analysts.
The International Monetary Fund has predicted economic declines of 1.7% in 2012 and 1.2% in 2013.
On Tuesday, Spain's borrowing costs surged in a short-term debt auction as the government resisted pressure to rapidly seek a full-blown sovereign bailout.
But borrowing costs, which had declined in previous weeks after the European Central Bank outlined plans to buy the bonds of stricken eurozone states, climbed sharply in the sale of three and six-month bills.
Spain has cut a deal with the European Union for a rescue loan of up to 100bn euro (£80bn) for banks hobbled by bad loans extended before its damaging 2008 property market crash.
But it has refused to be rushed into seeking a full-blown sovereign bailout until it knows the imposed conditions.
The yield rise above 6% comes a day before the Spanish government is expected to unveil its austerity cut plans.
On Friday, the country's bank stress test results are due to be revealed.
Political uncertainty continues to grow because of regional elections on October 21, and the decision for snap elections to be held in economic powerhouse Catalonia - responsible for about 20% of Spain's GDP.
The Catalonia vote on November 25 is seen by many as a crucial test of the region's separatist sentiment and risks sparking a full-blown constitutional crisis.