EUROPEAN stock markets have slumped and the euro has dropped under $1.28 for the first time in four months owing to concerns over fallout from the Cyprus bailout and a disappointing bond sale in Italy, analysts say. In London, the FTSE 100 index of leading companies dipped 0.11 per cent to close at 6387.56 points. In Frankfurt, the DAX 30 lost 1.15 per cent to 7789.09 points, while in Paris the CAC 40 sank 0.99 per cent to 3711.64 points. Madrid fell 1.13 per cent and Milan lost 0.92 per cent. The Athens stock exchange, a low volume market, plunged 3.99 per cent after Greece's biggest banks posted heavy losses. "The market is suffering from poor eurozone data, the situation in Cyprus and the Italian auction that puts the country front stage again," said Andrea Tueni of Saxo Bank in Paris. Italian borrowing rates for five-year debt rose to a five-month high and demand was weak in the auction amid concerns of political deadlock in the recession-hit country following inconclusive elections. Stock indices were falling "as the ongoing issues in Cyprus continue to weigh on sentiment," said Alpari trading group analyst Craig Erlam. In foreign exchange deals, the euro dropped to $1.2751 - the lowest level since November 21 - before recovering slightly to $1.2772 compared with $1.2861 late in New York on Tuesday. Gold prices gained to $US1606.70 ($A1539.21) an ounce from $1598 Tuesday on the London Bullion Market. Newspapers said the temporary restrictions, in place for seven days, would include bans on taking more than 3000 euros (A$3900) of cash out of Mediterranean island and on cashing cheques. Meanwhile there are fears that the controversial terms of the bailout could be mirrored in any future financial rescues of indebted eurozone members. Nicosia early Monday agreed a last-minute deal with its international lenders that will see it receive a $13 billion rescue package to help pay its bills. And while the decision to tax bank savings above 100,000 euros raised fears of a similar move in future rescues - reinforced by comments from the head of the Eurogroup of finance ministers - officials have since insisted that Cyprus is a special case. "The negative sentiment is also enhanced by rumours that this format will be adopted as a template for any further bailout schemes," said Currencies Direct trader Amir Khan. Although top officials deny any such move in the future, markets are still wary that this format will leave the banks with fewer deposits and in turn will allow them to lend less, shrinking growth. Elsewhere on Wednesday, in indebted eurozone member Italy there was weak demand at an auction of five and 10-year bonds, with bid-to-cover ratios of 1.2 and 1.3. Ratios of above 2.0, where submitted bids are double those accepted, are considered strong. The Italian treasury took in 3.91 billion euros at a rate of 3.65 per cent, a five-month high. However the yield on 10-year bonds dipped 4.66 per cent, compared with 4.83 per cent at the last similar auction on February 27, with three billion euros raised. The European Commission meanwhile said its key business and consumer confidence index for the eurozone fell 1.1 points in March to 90 points, reflecting a downturn in the manufacturing and service sectors while consumer sentiment was steady overall. Amid the gloom in Europe, US stocks moved lower on Wednesday in midday trading. The Dow Jones Industrial Average gave up 0.27 per cent, the broad-based S&P 500 sank 0.21 per cent, while the tech-rich Nasdaq Composite Index dropped 0.19 per cent. The retreat followed strong gains on Tuesday that resulted in a record high for the Dow and a near-all-time high to the S&P 500. "Follow-through has been lacking this morning for reasons that are both convenient and clear," Patrick O'Hare of Briefing.com wrote. Headlines out of Europe are largely to blame.