Almost US$1.5 billion was wiped from the value of Egypt's stock market as renewed violence in Cairo worsened already strained relations between the ousted Muslim Brotherhood and the new military-backed government.
The EGX 100 index fell by 4 per cent to 700.61, the biggest decline in four weeks, after shootings outside the Republican Guard headquarters killed at least 51 and injured hundreds more.
Both sides blamed each other in the aftermath of the attacks and political leaders appealed for calm.
"The political uncertainty and social instability are now at levels which are quite unprecedented, even compared to the aftermath of [former president Hosni] Mubarak," said Raza Agha, the regional chief economist at Russia's VTB Capital. "We have the potential of increased capital flight, and reserves will be under severe pressure going forward."
The central bank reported this week that Egyptian foreign reserves fell by US$1.2 billion to $14.9bn during June, scarcely enough to cover three months of imports.
As shares plunged, bond yields rose, with yields on the country's bonds maturing in 2020 up 23 basis points to 9.09 per cent. Bond yields move in the opposite direction from price.
Media reports raised hopes among investors that aid from the Arabian Gulf could be forthcoming.
Egypt's central bank governor was reported by Reuters, citing airport officials, to have left Egypt on Sunday for Abu Dhabi.
Meanwhile, Bloomberg reported that Egypt had raised $1bn from a bond sale to Qatar, citing a term sheet it had obtained.
But the fall in markets was more subdued than many recent sell-offs on the approach of Ramadan. Many emerging market investors have already cashed out, said Aziz Unan, a fund manager at Renaissance Asset Managers.
Nevertheless, institutional asset managers said the volatility was likely to continue.
"The surge of violence on the street will definitely scare investors. The negative reaction can't be overstated until we feel that the army will make sure to implement a smooth transition and maintain control of Muslim Brotherhood supporters," said Rami Sidani, the head of Middle East and North Africa at Schroders in Dubai.
"Until we get more visibility on the nature of the transition, we expect the market to be more volatile," he said.