Cyprus has told the European authorities that it intends to apply for financial assistance, the fifth eurozone member to do so.
It said it needs help to shore up its banks, which are heavily exposed to the Greek economy.
The announcement came on another day of nervousness about the single currency.
Shares in Italy, Spain and Greece fell sharply amid concerns that an EU summit this week will again fail to produce a deal to shore up the euro.
The Spanish prime minister called for Thursday's European Union summit to "dispel doubts" about the euro.
The Italian and Spanish indexes both closed about 4% down. The fall on Spain's Ibex index was exacerbated by a Reuters report that the Moody's credit rating agency is planning to downgrade Spain's banks.
Earlier Spain formally requested a bailout loan, expected to be for up to 100bn euros (£80.2bn, $125bn), for its banking sector.'Contagion'
In a short statement, the Cyprus government said the help would contain the risks to the Cypriot economy.
The BBC's chief economics correspondent Hugh Pym described Cyprus' problems as "classic contagion".
Cyprus' banks have lost large amounts on Greek government bonds. They are also facing big losses on loans made to businesses in Cyprus, which have been hard hit by the deep recession in neighbouring Greece, its biggest trading partner.
Earlier, Cyprus's credit rating was cut to junk status by the ratings agency Fitch, making it very hard for it to raise funds itself.
There was no further detail from the Cyprus government, but Fitch said the country, which has a population of one million, would need 4bn euros (£3.2bn) to support its banks, the equivalent of almost a quarter of its GDP, or economic output, last year.
BBC
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