European stock markets drop on Greece exit fears

European stocks dropped on Monday as investors feared Greece could be heading for a eurozone exit, while fallout from the Tunisia attacks hit the travel sector.

The European single currency slid below $1.1 at one point with Greece ever closer to defaulting on its debt.

Asian shares also tumbled because of Greece and owing to unease over China's economy, traders said.

"We're seeing a flight for safety in financial markets at the start of the week as investors respond to the actions of the Greek government over the weekend that has set in motion a series of events that may ultimately lead to Greece exiting the eurozone," said Craig Erlam, senior market analyst at Oanda trading group.

"The euro experienced heavy selling... as traders sought the safety of the yen, Swiss franc and gold to protect against the negative fallout from events in Greece."

Around midday in Frankfurt, the DAX 30 was showing a loss of 3.33 percent to 11,109.16 points compared with Friday's closing level. Many European markets had opened up with declines of more than 4.0 percent before trimming losses.

In Paris the CAC 40 slid 3.40 percent to 4,887.21 points. Milan shrunk by 3.72 percent in value and Madrid shed 3.66 percent.

Outside the eurozone, London's benchmark FTSE 100 lost 1.59 percent to 6,609.69 points.

Greek authorities ordered Athens' stock market to close Monday, alongside a decision to shut the country's banks for a week and impose capital controls -- causing shares in European banks to crash on Monday.

Deutsche Bank shed 5.31 percent, Societe General plunged 4.57 percent and HSBC retreated 1.86 percent.

The drastic measures to protect Greece's banking system against the threat of mass panic came after the European Central Bank said it would not increase its financial support to Greek lenders, despite early signs of a chaotic bank run.

"Greece’s decision to shut banks over the weekend is just the most dramatic element of a crisis that has spiralled out of control," said Chris Beauchamp, senior market analyst at traders IG.

"Time has almost run out to keep Greece in the eurozone, but even now it is perhaps unwise not to discount the possibility of an emergency package that will avert disaster," he added in a client note.

A weekend of high drama began with Prime Minister Alexis Tsipras's unexpected call for a July 5 referendum on creditors' latest reform proposals after bailout talks in Brussels collapsed.

In response, angry EU and IMF creditors rejected a request to extend the nation's bailout beyond its June 30 expiry date, sparking fears Greece could default on a key debt payment to the IMF due the same day, and possibly crash out of the eurozone.

In foreign exchange deals on Monday, the euro recovered to stand at $1.1110, but nevertheless  was still down compared with the level recorded late in New York on Friday when it hit $1.1160.

Spain and Italy's borrowing costs on international bond markets meanwhile rose.

Away from Greece, traders reacted to the killing of tourists in Tunisia last Friday.

The number of British victims may rise to more than 30 from the official toll of 15, the BBC reported Monday. In total, 38 people were shot dead in an attack claimed by the Islamic State group.

In reaction, shares in  UK travel firm TUI AG slumped 6.74 percent and rival Thomas Cook slid 3.33 percent.