LONDON, England - April 18, 2011 - Global stocks sank Monday after a leading credit ratings agency warned of a deteriorating U.S. financial position and investors fretted over a debt default by bailed-out Greece.

Though Standard & Poor's reaffirmed its triple A rating on the U.S., it downgraded its credit outlook to negative from stable, citing a "material risk" that policymakers won't be able to agree on a plan to deal with the "very large" budget deficit.

"While it has been widely recognized that the U.S. credit rating may have been at some risk of a downgrade for years, S&P's action still comes as a major wake-up call for policymakers and investors," said Douglas Porter, deputy chief economist at BMO Capital Markets. "This may well prompt more forceful action on the deficit in the next two years, which in turn will act as a more forceful drag on (any) economic recovery."

The markets were certainly shocked by the announcement and stocks fell sharply.

In Europe, the FTSE 100 index of leading British shares closed down 2.1% to 5,870.08, while Germany's DAX slid 2.1% to 7,026.85. The CAC-40 in France ended 2.4% lower, at 3,881.24.

On Wall Street, the Dow Jones industrial average was down 1.7%, at 12,132 around midday New York time, while the broader Standard & Poor's 500 index fell 1.5%, to 1,299.59.

Stocks in Europe had already been trading lower amid mounting concerns over a possible Greek debt default. In addition, huge election gains for a nationalist euroskeptic party in Finland added to the tensions over Europe's debt crisis. Portugal also began discussions on a financial bailout and Spain had to pay much higher interest rates to borrow in the markets.

The renewed focus on Greece's debts came after suggestions the country would be better off looking for a way to renegotiate its debts.