The London market fell for the second day this week as Greece's brinkmanship brought it within hours of missing a 1.6 billion euro (£1.1 billion) payment edging it a step closer to leaving the euro.

At the 11th hour Greek prime minister Alexis Tsipras proposed a two-year deal using Europe's bailout fund, the European Stability Mechanism, and its creditor's are willing to talk late into the night.

However, London's FTSE 100 Index fell 99.5 points to 6521, following Monday's two per cent decline, because details of the talks are sketchy and ongoing.

The Dax in Germany and France's Cac 40 were both more than one per cent down after plunging nearly four per cent on Monday.

US stocks had their worst day of the year yesterday after the Greek saga took another turn, with the country's banks shutting their doors as it prepares for a referendum that will effectively decide whether to stay in the euro.

The Dow Jones Industrial Average lost 350.33 points, or two per cent, overnight - wiping out all the gains seen so far this year, but it was up slightly in early trading.

It hangs in the balance whether Athens will default on its payment to the International Monetary Fund (IMF) by today's 10pm deadline, with its current bailout also expiring at the same time.

Greece has been in talks for months with its three creditors - the IMF, the European Central Bank (ECB) and the European Commission.

The stricken country said it would close its banks for a week and voters on Sunday will effectively decide whether to stay in the euro.

Greek prime minister Tsipras has urged the country to vote against austerity proposals, but EU leaders have warned that rejection would mean Greece leaving the eurozone.

The pound was a cent up on the euro, at just under 1.41, after hitting a seven-and-a-half year high against the euro on Monday as worries about Greece defaulting on its debts and leaving the single currency took their toll. Sterling was flat against the US dollar, at 1.57.

Among stocks, supermarkets Tesco and Sainsbury's both fell by more than two per cent on the back of data by research group Kantar, which showed that their market shares fell as a result of the ongoing supermarket price war.

Tesco was down 6.2p at 212.6p, while Sainsbury's was 8.9p lower to 265.3p.

Online grocer Ocado was up almost four per cent, or 15.9p higher at 445.9p in the FTSE 250 even though investors were kept waiting once more for a long-awaited international tie-up, despite assurances from the group that it still hopes to strike a deal to sell its technology to an overseas retailer by the end of the year.

Half-year figures showed Ocado's underlying earnings rose 11.4 per cent to £38.2 million in the 24 weeks to May 17 on sales 15.7 per cent higher.

Floorings retailer Carpetright swung to a full-year profit on the back of strong UK trading and a turnaround of its continental stores.

The Essex-based firm, which has 460 UK shops, saw it underlying pre-tax profit jump almost three times to £13m in the 53 weeks to May 2, as the group put a series of previous profit warnings behind it.

Carpetright's statutory pre-tax profit was £6.6m for the period, against a loss of £7.2m. Shares lifted three per cent, or 19.5p to 609p.

The biggest risers on the FTSE 100 Index were Hikma Pharmaceuticals up 47p at 1933p, Meggitt up 3.4p at 466.4p, Inmarsat up 4.5p at 915.5p and Persimmon at 9p at 1975p.

The biggest fallers on the FTSE 100 Index were BHP Billiton down 52.5p at 1249p United Utilities down 33.5p at 892p, Sainsbury's down 8.9p at 265.3p and Anglo American down 30p at 918.5p.