TOKYO--Asia stocks fell to multi-month lows, the euro slid and oil and higher yielding currencies weakened on Tuesday on fears that Europe's sovereign debt woes will trigger a renewed crisis in the continent's banking sector. Heightened tensions and talk of war on the Korean peninsula also jangled investor nerves in East Asia. Europe's fumbling response to a Greek debt crisis and bulging deficits in other euro zone countries have unnerved markets over the past six weeks, and the central bank takeover of a small Spanish lender at the weekend stoked fears of a wider meltdown. "This situation with the Spanish bank makes investors nervous because it raises suspicions that something else may be smoldering behind the scenes," said Hiroichi Nishi, equity division general manager at Nikko Cordial Securities in Tokyo. European stocks looked set to dive, with futures for the Stoxx Europe 50 down 3.5 percent. Financial bookmakers were calling the FTSE 100 .Funding conditions for banks have been tightening, with institutions in the United States increasingly reluctant to deal with firms with large exposure to Europe. "Investors are selling into every rally in the euro," said Jonathan Cavenagh, currency strategist at Australia's Westpac. "Worries about the euro debt crisis are showing signs of spilling over to the banking sector with funding costs rising, albeit from very low levels. All this will only see more demand for U.S. dollars." Money markets have seen an increasing reluctance to lend, particularly for longer terms, raising fears that dollar-funding strains could further hobble troubled banks. The cost of lending dollars in Singapore jumped to an 11-month high and benchmark LIBOR fixings were expected to creep higher in London later.
