Commodities and miners fell after Japan intervened in the currency market, pushing the U.S. dollar higher. Banks were also weak as investors evaluated Europe's plans to resolve its sovereign debt crisis.
Britain's FTSE 100 fell 1 per cent, France's CAC 40 lost 1.6 per cent and Germany's DAX slipped 1.4 per cent. Japan's Nikkei edged 0.7 per cent lower, while Hong Kong's Hang Seng slid 0.8 per cent.
Dow stock futures also reflected weakness, losing 89 points, or 0.7 per cent, to 12,079 about two and a half hours before trading began. S&P 500 futures fell 11.4 points, or 0.9 per cent, to 1,269.50.
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Gold lost $28.10, sliding to $1,719.10 (U.S.) an ounce.
U.S. crude oil futures fell 0.7 per cent to $92.64 a barrel, as the U.S. dollar hit a three-month high, making commodities more expensive and cooling demand.
The greenback, which had fallen to a record low of 75.31 yen earlier in Asian trade, rose more than 4 per cent, as high as 79.55 yen. Japanese Finance Minister Jun Azumi said Tokyo intervened unilaterally in the foreign exchange market on Monday to counter speculative moves that did not reflect the health of the Japanese economy. It was the third time this year Japan has been in the market to try and curb the yen's strength.
The Canadian dollar edged lower to $1.0037 (U.S.).
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The euro slipped almost 1 per cent against the dollar to $1.4014, amid speculation about a possible interest rate cut on Thursday by the European Central Bank.
Concerns over Europe also cast a shadow over the market. Japan told the head of Europe's bailout fund on Monday that it would continue to buy its bonds, but did not commit to putting cash into a mooted special purpose vehicle to enhance the rescue fund's firepower. Chinese President Hu Jintao said he believed Europe had the capacity to overcome its economic problems and gave no indication of whether Beijing could play a major role in helping solve the euro zone's debt crisis.
Investors also appeared doubtful that Italian Prime Minister Silvio Berlusconi could deliver fiscal reforms to deal with Italy's debt.
German Bund futures jumped 87 ticks to 134.54 while U.S. T-note futures were up 10/32 at 128/12.5/32.