Global stock markets fell again on Wednesday, hitting their lowest in two months as investors fretted about a monetary squeeze from central banks around the world and also the impact of tightening U.S. banking regulation.

European markets lost 1.5 percent in early trading and followed a 9th straight loss for Asia stocks on continued reverberations over China's credit tightening this week.

Investors were also on edge as the U.S. Federal Reserve was due to end its latest two-day policy meeting later in the day.

While the meeting is expected to yield little in terms of a near-term policy shift, traders will scour its statement for clues on when it may wind down its policy of quantitative easing -- effectively money printing via purchases of bonds.

What is more, the meeting is taking place amid a fierce Senate debate over whether Chairman Ben Bernanke should be appointed for a second term, another factor weighing on investor confidence this week.

There were also concerns about the intensifying regulatory backlash against U.S. and global banks, captured by U.S. President Barack Obama's latest proposals to limit the size of banks, their proprietary trading and their links to hedge funds.

There are worries about the Fed phasing out quantitative easing, said Bernard McAlinden, investment strategist at NCB Stockbrokers. There are also still worries about Obama's plans for banks, and Chinese growth.

We're well into a major correction now, and this is about as big as most corrections get. The outlook is for some sideways trading, he said.

Banks continued to fuel the heat of the market retreat.

Spain's second-largest bank, BBVA fell 4 percent after posting a 16.1 percent decline in 2009 net profit to 4.21 billion euros ($5.9 billion) as the impact of the global downturn forced it to make more provisions.

Other banks to fall included BNP Paribas, Banco Santander, Barclays, Deutsche Bank and UBS, down between 1.5 and 2.6 percent.

U.S. stocks slipped late on Tuesday due to trepidation over churning political and regulatory developments, offsetting solid earnings and improved consumer confidence data.

The S&P 500 closed 0.4 percent lower and futures prices pointed to a resumption of the decline later.


Risk aversion everywhere was heightened by regulatory concerns, China tightening, the Fed meeting and sovereign debt worries in Greece and elsewhere.

The premium investors demand to hold 10-year Greek government bonds rather than benchmark German Bunds jumped to a euro lifetime high after the Greek finance ministry said there was no deal to sell bonds to China.

Ten-year Greek bonds yielded as much as 332 basis points over German Bunds, up 28 basis points on the day, after the comments denying press reports Greek planned to sell about 25 billion euros of its debt to China.

They've denied the China sale story and that was the only thing that was keeping the market in, said a trader in London.

Emerging market stocks, meantime, dropped 0.65 percent to two-month lows.

The dollar rose 0.2 percent and the yen gained broadly on Wednesday as investors shied from riskier assets.

Concerns over China and Greece are still in the background. The uncertainty all this suggests is likely to keep risk on the back foot, said Gavin Friend, currency strategist at National Australia Bank.

Equities have further to go on the downside and the period of pessimism can continue.

By 0930 GMT, the euro was down slightly against the dollar at 1.4050 and was down 0.5 percent at 125.50 yen after hitting a 9-month low of 125.25 yen earlier.

Euro zone government bonds yields were flat.

(Additional reporting by Brian Gorman, Kevin Yao and Tamawa Desai; Editing by Ruth Pitchford)