Investors fear the money may not reach Greece to enable it to avoid default by May 19, when $12bn in bond payments become due.
With the clock ticking, leaders of Greece's 15 euro currency partners are planning a summit on May 10 in a bid to agree on the rescue loan, a source close to the Spanish EU presidency told the AFP news agency.
"Intensive dialogue is under way between heads of state and government to call a summit of euro countries at the level of leaders on May 10," for only the second time in the euro's history, the source said.
The German government, which is the largest single contributor to the bailout package with a $11.2bn loan, is reluctant to vote on the deal until after May 9 elections in the country's most populous state - North Rhine-Westphalia.
As a result, the meeting in Brussels will take place the day after the election.
A governmental source in Berlin told Dow Jones Newswires that IMF-EU negotiations in Athens would conclude on May 2, with the proposals to be debated in the Greek parliament ahead of the May 10 talks in the Belgian capital.
The FTSE 100 index of leading British shares closed down 2.6 per cent on Tuesday, while Germany's DAX slid 2.7 per cent and the French CAC-40 ended 3.8 per cent lower.
On Wall Street, the Dow Jones industrial average was down 132.25 points, or 1.2 per cent, at 11,072.78 around midday New York time while the broader Standard & Poor's 500 index tumbled 18.17 points, or 1.5 per cent, at 1,193.34.
Greek and Portuguese share were worst hit, down 6.7 per cent and 5.4 per cent respectively.
Both governments have imposed budget cutbacks against political resistance from unions at home.
But markets have been skeptical that they can push through the measures given the widespread opposition.
Speaking to the AP news agency following the downgrade, Giorgos Petalotis, a Greek government spokesman, said: "This shows that the problem is broader, and concerns all the other countries and not just Greece.
"As a country, we are doing everything necessary to overcome this difficult situation, we are taking the measures and decisions that have been asked of us for sometime now."
Asked if the downgrade news means bailout negotiations need to be speeded up, Petalotis answered: "I think the need to them speed up, is something everyone can assess."
Portugal's finance minister said the downgrade would only make things worse.
"This is a decisive moment," Fernando Teixeira dos Santos said in a statement, urging political parties in opposition to his minority Socialist government to help swiftly enact debt-reduction measures he has outlined in his austerity plan.
"Regardless of the opinion we have in relation to the fairness and update of the rating, the fact is that this decision will not help markets to calm down, but will, on the contrary, contribute for their turbulence," he said.