As fears that Greece could default on its debt turned to a massive retreat in equity markets, interest on 10-year Greek bonds soared to over 8 percent Thursday.

It was reported that the Nikkei 225 index in Japan fell 3.27 percent Thursday, while the Shangai composite index in China plunged 4.11 percent. In Italy, the FTSE MIB index lost 4.27 percent. Markets fell over 3 percent in the United States and Brazil and more than 2 percent in France, Sweden and Australia.

MarketWatch has reported that Jan Suskind, senior vice president at Duncan-Williams asked if Greece and Europe were "the canary in the coal mine" for U. S. investors.

Some investors have speculated that the European Central Bank would buy Greek bonds directly, although rating agency Standard & Poor's downgraded Greek debt to junk status recently.

The New York Times also reported that the ECB said this week it would allow banks to use Greek bonds as collateral, but bank President Jean-Claude Trichet said the issue of Greek debt was not discussed by policymakers.

"Greece will not default," Trichet said recently at a press conference in Lisbon.

"Portugal is not Greece. Spain is not Greece," in an effort to convince investors the crisis will not spread to larger economies that also have debt problems, he said. (With Inputs from Agencies)