LONDON - Bond-market investors fretted Wednesday about Europe's debt crisis and, increasingly, over the scale of U.S. borrowing after President Obama's agreement with the Republicans to extend tax cuts for all Americans.

In Europe, the FTSE 100 index of leading British shares closed down 13.92 points, or 0.2 percent, while Germany's DAX fell 26.04 points, or 0.4 percent.

More dramatic developments are being seen in the dollar and in U.S. government bonds after Obama's tax-cut compromise.

The worry in the markets, echoed by the credit-ratings agency Moody's Investor Services, is that the tax-cut extension could add about $4 trillion to the U.S. deficit over the next 10 years. Bond investors see no credible plan to get a grip on that deficit - especially since the government will be split for the next two years, with Republicans in control of the House and Democrats in control of the Senate and the White House.

"The world in which investors took solace in lowly yields on account of sovereign debt crises in the eurozone and fears over the health of global recovery has suddenly changed after agreement to keep tax cuts in place," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

The yield on 10-year Treasuries is now at 3.28 percent, its highest since late June. The yield moves inversely to the price.

Developments in the bond markets over the last couple of days have highlighted that debt levels are historically high all around the world after governments loosened the purse strings to deal with the global financial crisis and the ensuing recession.

As the U.S. deficit comes into focus, there has been an easing in the bond markets of the more highly indebted countries in Europe following indications that the European Central Bank is taking a more active role in the crisis, through bigger purchases of government bonds.

So far, the ECB's bond-buying appears to be doing the trick - buying bonds supports their prices, taking pressure off the banks that hold them. It also lowers bond yields, which indicate the borrowing costs countries would face were they to go into the market for more credit.

Portugal is one country that will be breathing a huge sigh of relief as the yield on its 10-year bonds has fallen below 6 percent from just above 7 percent a week ago, while Ireland's government will be comforted that the passage of its budget Tuesday, which includes 6 billion euro worth of austerity measures, has pushed Irish bond yields down by 0.13 of a percentage point to 7.83 percent.

Investors are also keeping a close watch on developments in China, amid mounting market talk that the country's monetary authorities are planning to raise interest rates soon - possibly this weekend - in an attempt to rein in inflationary pressures and cool a property-related credit boom.