Investors rushed to buy low risk German bonds and gold, and sell risky shares and bonds, as negotiations between Greece and its creditors broke down yesterday.
European shares lurched lower, and US stock futures extended losses, after a Greek government official said the country's creditors had rejected its latest proposals.
According to a statement from Greek Prime Minister Alexis Tsipras' office, creditors had already rejected some of Greece's proposals before he left for talks in Brussels.
It sent markets into a sell-off, though losses were pared after a European Union official said talks with Greece were still going on and that Mr Tsipras would still meet the creditors as planned.
After months of taking Greece's inconclusive debt negotiations in their stride markets are now rattled.
"Most people were assuming ... they'd agree on something," said Alan McQuaid, chief economist at Merrion Stockbrokers. "I was quite relaxed thinking a deal might get done and now you get this bombshell... Is that the end of it? I don't know."
European leaders are facing into a two-day summit in Brussels, while Mr Tsipras is engaged in a round of talks with the heads of the European Central Bank, the International Monetary Fund and the European Commission.
The pan-European FTSEurofirst 300 index fell 0.3pc after the latest of those talks stalled around lunchtime yesterday, having traded about flat for most the day. US stock index futures extended losses.
Greek shares, which have become extraordinary volatile, were 3.6pc lower.
In Dublin, the Iseq index dropped by a quarter of a percent, and volumes traded were low. As investors fled to safety yields on German 10-year government bonds, the benchmark for Eurozone borrowing costs, fell as low as 0.81pc. Greek borrowing costs shot up past 10pc.
Gold also lifted off a one-week low after the Greek statement. By late afternoon it traded at $1,177.94 an ounce, having fallen as low as $1,173.80. Gold is seen by investors as a "hedge" to limit risk in unpredictable markets.
Yields on Italian and Spanish 10-year bonds, seen as vulnerable to contagion from the Greece crisis, rose.
Ireland's borrowing costs are hovering close to 1.6pc for 10-year debt, far less than Spain and Portugal but nearly three times higher than in April.
"We have a very important day ahead and it may be a volatile day," said KBC strategist Piet Lammens. "It's clear that it's not yet a done deal."
With its integrity as an "irreversible" common currency hanging in the balance, the euro has fallen against the dollar and other major currencies, down 4.3pc this year including a sharp drop on Tuesday.
The euro recovered slightly yesterday, but currency traders were on the fence on whether the currency is a hedge against a Greek default - like German bonds - or at risk of weakening further if it loses a member state.
"It is harder to tell if Greek debt stress is good or bad for the euro," Greg Gibbs, a strategist at RBS, wrote in a client note. "In the end, the prospect of a new deal only served to allow the market to reassess broader fundamentals from a cleaner slate." (Additional reporting Reuters & Bloomberg)