A global stock markets rally petered out and Spanish bond rates hit record highs on Monday despite a Greek election result welcomed by investors, who were turning their attention to a key G20 summit.
The euro and Asian markets surged Monday on the receding risk of a Greek euro exit after pro-austerity parties came out on top.
But the rally lost steam quickly in European trading as investors worried about whether Spain and Italy would avoid bailouts that could stretch the currency union to the breaking point.
"For the second week in succession, euphoria over apparent progress in the eurozone has lasted for only a few hours," said Chris Beauchamp, a market analyst at IG Index trading group.
"In summary, we are really no further along than last Friday, and markets have reflected this; last week's relief rally lasted barely a day, this one has been even briefer.
"Spanish and Italian yields have begun rising once again, while most indices are now back in the red. US futures are signalling a weaker start for Wall Street," he added.
The euro gave up its early gains, and had slid to $1.2593 in afternoon European trading from $1.2644 late on Friday in New York.
After see-sawing throughout the day London's FTSE 100 index of leading companies was up 0.16 percent to 5.478.81 points in afternoon trading.
Frankfurt's DAX 30 added 0.40 percent to 6,254.54 points but in Paris the CAC 40 fell 0.40 percent to 3,075.19.
Madrid's IBEX 35 was down 2.37 percent, awaiting details of Spain's 100-billion-euro bank bailout.
US stocks fell at the open, with the Dow Jones Industrial Average dropping 0.46 percent to 2,859.45 points.
The S&P 500 also gave up 0.46 percent to 1,336.60 points and the Nasdaq slid by 0.46 percent to 2,859.45 points.
"Greek elections? That's yesterday's news. Today's crisis is a spike in Spanish bond yields," said Dick Green of Briefing.com.
The rate which Spain must pay to borrow for 10 years rose to a record above 7.0 percent on Monday after briefly dipping in response to the Greek election.
The sudden rise was a signal that immediate dangers of debt contagion within the eurozone remain despite the Greek vote in favour of rescue terms.
The Spanish 10-year bond yield rose to 7.144 percent at 1320 GMT from 6.838 percent late on Friday.
The gap with the yield on German 10-year bonds, the eurozone benchmark, widened to a record 5.89 percentage points at one point during trading.
Italian yields rose to 6.076 percent from 5.912 percent, while that on German bonds fell to 1.390 percent from 1.436 percent.
European stock markets had rallied by more than 1.0 percent at the open following strong gains for Asian equity indices on Monday.
Greece's stock exchange started with a jump of 6.48 percent after a cliffhanger election won by a conservative party which pledges to honour the country's bailout obligations.
The conservative New Democracy elected 129 deputies in the 300-seat parliament and there are hopes that a workable coalition will be forged with the socialist Pasok party, which secured a further 33 seats.
The Athens exchange, which has fallen to its lowest level in years as the country slogs through a five-year recession, gained a combined 11.97 percent last week as speculation of a New Democracy victory mounted.
The election in Greece was the second in six weeks after May 6 polls failed to produce a government, stoking fears that the political stalemate would paralyse efforts to bring the country back from the brink.
The vote essentially became a referendum on the country's membership of the eurozone, with European leaders warning that a win for Syriza would likely see Athens renege on its debt commitments and ultimately exit the bloc.
Athens has been forced to seek bailouts twice in recent years amounting to about 347 billion euros, and European leaders warned Greece it must respect its international debt commitments or risk leaving the euro club.
Attention shifted to G20 meeting in Mexico over the next two days, where Europe's debilitating debt crisis will be discussed ahead of a summit of European leaders next week.
Dealers were also looking to a US Federal Reserve policy meeting this week amid hopes that it would announce fresh monetary easing to kickstart the economy.
burs-rl/wai