Spain's main Ibex-35 stock index extended the previous session's losses on Wednesday as markets remain on edge over monetary policy and the countdown to the U.S. debt ceiling being raised.

Wednesday will see the release of the minutes of the most recent meeting held by the US Federal Reserve, at which the central bank implemented what many expect to be the latest in a relentless barrage of interest rate hikes.

Of particular interest will be the extent of any dissonant messages, as investors weigh their bets on the duration of the Fed's tightening policy and the timing of the inevitable turnaround.

Moreover, the ongoing partisan fight in Washington over raising the debt ceiling and avoiding a US default appears to be making little headway.

"The highly unlikely scenario of a one-month coupon default would not only trigger an immediate drop of up to 30% in stocks, but would also see a very weak recovery, with the S&P 500 ending 5% below current levels even at the end of '24," said UBS.

Its analysts consider the odds of default on date X to be significant, but said the most likely outcome is a deal to raise the debt ceiling.

This would trigger a few weeks of market volatility and very little economic impact, they said.

Against this backdrop, Spain's selective Ibex-35 stock market closed down 103.50 points on Wednesday, down 1.12%, at 9,163.50 points. This is the biggest drop in the index since April 25, when European markets succumbed to jitters over banking results and inflation.

The FTSE Eurofirst 300 index of large European stocks lost 1.81%.

In the banking sector, Santander lost 2.59%, BBVA fell 2.34%, Caixabank gave up 0.86%, Sabadell fell 2.28%, Bankinter gained 0.69% and Unicaja Banco lost 1.95%.

Among the large non-financial stocks, Telefónica gained 0.05%, Inditex fell 0.97%, Iberdrola dropped 0.39%, Cellnex fell 1.38%, and the oil company Repsol rose 0.30%.

(Information by Flora Gómez; additional information by Danilo Masoni).