Ten-year Spanish government bond yields rose to a fresh euro-era high of 7.59 percent following local media reports that up to six regions may seek aid from the central government after Valencia asked for funds on Friday.
"Given the market reaction on the back of the news that more and more regions are looking to tap in to the liquidity fund..., it will be very difficult for Spain to circumvent further support for itself," said Norbert Aul, a rate strategist at RBC Capital Markets.
Economy Minister Luis de Guindos on Monday said Spain did not need a full sovereign aid package such as the ones taken by Greece, Ireland and Portugal to stay afloat.
But the regional problems have overshadowed Friday's formal approval of a bank bailout for Spain, worth up to 100 billion euros, and the efforts to reduce the national deficit.
Concerns over Greece's future within the euro zone have also resurfaced ahead of the visit to Athens by a group of international lenders on Tuesday. They must decide if the government has done enough to qualify for further rescue payments and avoid a chaotic default.
The combination of worries about Spain and Greece sent the single currency down 0.6 percent to $1.2082, the lowest level since June 2010.
Data from the Commodity Futures Trading Commission released on Friday showed that currency speculators are increasing their bets in favour of the US dollar as the euro zone debt crisis and its impact on global growth deepens.
"The ongoing negative developments in Europe support our view that the defensive currencies of the yen and the US dollar will remain firm in the near-term amidst euro weakness," said Lee Hardman, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The steady trend away from riskier assets has pushed safe haven bond prices higher and yields lower across the board.
Ten-year US Treasury note yields hit a record low of 1.4246 percent in Asia on Monday, while Japanese government bond yields fell to their lowest level since 2003 and German bond prices rose.
ITALY IN FOCUS
At the other end of the risk spectrum Italian 10-year government bond yields shot past their Irish counterparts for the first time since January 2009 as they gained 16 basis points to be 6.37 percent.
In equity markets investors were fleeing bank stocks, which are most exposed to the debt crisis, sending the FTSE Eurofirst 300 index of top European shares down 1.6 percent to 1031.86 points, after it lost 1.5 percent on Friday.
Euro zone bank stocks fell 4.9 percent while shares in Italian banks were temporarily suspended from trading soon after the open as investors feared Italy would be the next country to run into trouble if Spain needed a full bailout.
Spain's main stock index, the Ibex, was down 3.2 percent after recording its biggest daily slump in two years on Friday falling 5.8 percent.
"It's very much risk-off this morning," said Central Markets senior broker Joe Neighbour. "There are fresh concerns over Europe, but those concerns had never really gone away in the first place."
Futures prices for the S&P 500, the Dow Jones and the Nasdaq 100 were all pointing sharply lower, signaling continued risk aversion ahead.
Spain's fiscal woes also triggered selling in oil, sending Brent down more than $1 at $105.43 a barrel, while corn and soybean prices eased from the record highs reached at the end of last week.
Spot gold eased, losing about 0.6 percent to $1,574.29 an ounce despite its role as a safe haven, as the stronger dollar made the precious metal less attractive.
The dollar has climbed more than 4 percent against a basket of currencies so far this year, weighing on gold that has risen about 1 percent during the same period.
The lack of commitment to further monetary stimulus from the US Federal Reserve has left gold trapped in an increasingly narrow range, as investors await clarification from the next Fed policy meeting at the end of the month.