International alarm over Europe's debt crisis reached new heights with US President Barack Obama pressing the bloc's big countries to show leadership as talk of a Greek default escalated and markets heaped pressure on Italy.

German Chancellor Angela Merkel on Tuesday sought to quash talk of an imminent Greek default or exit from the euro zone, but confusion over whether she would issue a statement on Greece with French President Sarkozy sent markets down.

Confidence in the 17-nation currency area was dented when Italy was forced to pay the highest interest rates since joining the euro in 1999 to sell five-year bonds.

Merkel told RBB inforadio that Europe would use all the tools at its disposal to prevent a Greek default as an exit from the bloc would lead to 'domino effects'.-Reuters