Stress in the European financial sector has hit all-time highs, with banks finding it difficult to borrow in the longer-term debt market following the US credit rating downgrade and funding concerns over eurozone economies.

"Short term and three-month money is available, even though the euro money markets are a bit stressed," said Deutsche Bank strategist Mahesh Bhimalingam. "The problem is with the longer term market, which has shut down. With €260bn of long-term paper to re-finance for the rest of the year, European banks are being forced to wait or turn to the short term markets."