European stocks sank on Tuesday morning, suffering their biggest one-day sell-off in a month after Greece's prime minister unexpectedly called a referendum on the latest bailout deal.
Investors were also rattled by data showing Chinese factory activity slowed to a near three-year low in October.
"The risk is that a 'no' from the Greeks will completely derail the rescue efforts. With the vote due in January, we can kiss the year-end rally goodbye," a Paris-based trader said.
Shares in French banks -- which have big exposure to euro zone peripheral debt -- took a beating, with Societe Generale down 10 percent, BNP Paribas down 7.6 percent, and Credit Agricole down 9.3 percent.
The FTSEurofirst 300 index of top European shares was down 2.3 percent at 972.77 points at 0916 GMT, after losing 2.2 percent on Monday. Next support is at 961.45, a 38.2 percent Fibonacci retracement of the rally from Sept. 22 to Oct. 28.
Last week's relief rally, sparked after euro zone leaders unveiled fresh measures to help Greece and fight the region's debt crisis, has been wiped out -- with the STOXX euro zone bank index down 14 percent from last Friday's peak.
"The referendum is a bad idea with a bad timing. The post-summit rally is over," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
"Long-onlys are cutting positions in the banks, while the drop in the euro is bringing a bit of appetite in names such as EADS . The few buyers out there are essentially looking at stocks exposed to emerging economies' growth."
Airbus parent EADS was up 0.05 percent, while the euro slid more than 1 percent versus the dollar to $1.3674.
The Euro STOXX 50 volatility index , Europe's main barometer of anxiety known as VSTOXX index, was up 15 percent and above 40, signalling a sharp rise in risk aversion.
Around Europe, Britain's FTSE 100 index was down 1.9 percent, Germany's DAX index down 3.2 percent, and France's CAC 40 down 2.9 percent.
Miners took a beating, with Xstrata down 5.2 percent and BHP Billiton down 2.1 percent.