Investors were rattled by a steep US decline on Friday, when worries about the outlook for the world's largest economy grew amid poor earnings news on the 20th anniversary of the New York market crash.
Elsewhere Monday, the European single currency hit a record 1.4347 dollars high. A strong euro makes eurozone exports more expensive for buyers using weaker currencies, and therefore weighs on European shares. The euro later stood at 1.4137 dollars.
In London, the FTSE 100 was down 1.05 percent to 6,459.30 points, while in Paris the CAC 40 shed 1.38 percent at 5,661.27 points and Frankfurt's DAX fell 1.13 percent to 7,794.94.
The Euro Stoxx 50 index of leading eurozone shares was down 1.32 percent at 4,352.91 points.
Across the Atlantic Wall Street steadied after a sharply weaker opening with markets still skittish after last week's decline and fears of more US economic turmoil ahead.
In midsession trade, the Dow Jones Industrial Average was off its worst levels and down 0.31 percent to 13,479.83 while the Nasdaq composite swung into positive territory, gaining 0.35 percent to 2,734.81.
©AFP - Mark Ralston
The broad-market Standard & Poor's 500 index was down a modest 0.11 percent to 1,498.96.
Global finance chiefs said over the weekend that the recent financial market turbulence, high oil prices and a US housing downturn were likely to "moderate" global growth from its recent robust levels.
"Investors have been spooked by three main things," said Barclays Capital analyst Henk Potts on Monday.
"Number one, is concern that the problems we have been seeing in the credit market could last longer than originally hoped, and number two is the oil price reaching record levels last week.
"Number three, was some disappointing numbers from Caterpillar, which was a sign that the problems we have been seeing are starting to affect the corporate picture."
Potts added that global stock markets were still in positive territory for the year despite the fresh downturn.
The Dow Jones index lost a hefty 2.64 percent on Friday after several major companies reported soft earnings and showed caution about the profit outlook.
Caterpillar, the US maker of heavy equipment which is regarded as highly sensitive to global economic conditions, offered weak guidance going forward.
©AFP - Yoshikazu Tsuno
"Uncertainty about the prospects for the US economy have increased after disappointing earnings amid the credit tightening concerns," said Kazuhiro Takahashi, equity general manager at Daiwa Securities SMBC.
The market has been sensitive to the financial sector given recent US credit market problems. A weak earnings report from banking giant Wachovia, which offered murky guidance going forward, added to market worries.
The dollar suffered fresh losses after Group of Seven finance chiefs refrained from voicing increased concern about currencies, which markets took as a green light to drive the unit to another record low against the euro.
The yen shot higher, hitting Japanese exporter shares, as the latest stock market rout prompted investors to unwind risky bets funded by selling the Japanese unit.
Japanese exporters have benefitted greatly from the weakness of the yen, so investors react nervously to any sign of the currency appreciating.
The Nikkei 225 index closed down 2.24 percent at 16,438.47, the lowest closing level since September 26.
In Europe, shares in Electrolux dropped by 7.89 percent to 128.50 Swedish kronor, after disappointing third quarter results, on a Stockholm market which was 2.31 percent lower.
Madrid's main IBEX 35 index lost 1.3 percent to 15,327.8 points, Brussels fell 0.97 percent to 4,373.57, Milan was down 0.62 percent at 39,242 points, the Swiss Market Index shed 1.03 percent to 8,845.39 points and Amsterdam's AEX slipped 1.75 percent to 541.43 points.
Elsewhere in Asia Monday, Hong Kong lost 3.7 percent, while Seoul shed 3.4 percent and Shanghai shed 2.59 percent with Sydney 1.9 percent lower.
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