European stock markets closed lower on Tuesday, unable to recover from the previous day's slump as tumbling oil prices and fears of a Greek exit from the eurozone continued to rattle investors.
The euro traded around nine-year low points before stabilising as investors wait to see what action the European Central Bank will take to stimulate the eurozone economy which is being undermined by slowing inflation.
London's benchmark FTSE 100 index closed 0.79 percent lower to stand at 6,366.51 points, also weighed down by data showing Britain's services sector grew at its slowest rate for 19 months in December.
Frankfurt's DAX 30 dipped 0.04 percent to close at 4,083.50 points and the CAC 40 in Paris lost 0.68 percent to end the day at 4,083.50, giving up gains earlier in the trading day.
European equities had plunged Monday over the impact of the political turmoil in Greece on the eurozone and as the euro struck near nine-year lows against the dollar with the European Central Bank appearing on course to further prop up the single currency.
Europe's sharp losses were felt by US markets on Monday and across Asian and Middle East indices Tuesday.
US stocks continued falling Tuesday after the previous day's rout, with the Dow Jones Industrial Average down 1.03 percent to 17,321.51 in midday trading.
The broad-based S&P 500 shed 0.98 percent to 2,000.76, while the tech-rich Nasdaq Composite Index dropped 1.60 percent to 4,577.99.
- Euro weakness -
The first full week of the new year got off to a traumatic start for dealers as they bet that a January 25 general election in Greece would see the left-wing Syriza party come out on top in the polls.
Markets fear the party will roll back austerity measures required under the IMF-EU bailout of the country, which could in turn lead to Greece leaving the eurozone.
In foreign exchange trading, the euro stabilised to $1.1934 on Tuesday from $1.1933 late in New York on Monday. The single currency had begun the week by tumbling to $1.1864 -- the lowest level since March 2006.
Remarks by ECB chief Mario Draghi that deflation was a threat to the eurozone and that the ECB must be prepared to counter it and caused the euro to slide in recent days.
The central bank is currently examining the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or "QE", to help jump-start the eurozone economy.
But the euro outlook remains weak "as poor eurozone growth, the implementation of quantitative easing and fears for the region's indebted economies suggest that the currency is set for a sustained period of weakness that will probably see it fall to levels not seen since shortly after its introduction," said Jennifer McKeown, senior European economist at Capital Economics.
- Oil industry recession? -
Market sentiment was also being dragged down also by plunging oil prices, which hit fresh 5.5 year lows.
Investment bank Evercore IS said Tuesday the global oil industry was headed for a "sharp recession" as the price fall will lead energy companies to slash capital spending in North America, Europe and Asia.
US oil prices Tuesday stood at five and a half year lows, below $48 a barrel, down from nearly $107 in June.
The London benchmark, Brent crude, has fallen from $115 a barrel to less than $51 Tuesday.
With the ECB primed to act and amid fears over the prospect of Greece leaving the eurozone, investors tried to lock into relatively safe-haven investments such as French and German government bonds.
That sent French and German government borrowing rates to new all-time lows on Tuesday before recovering slightly, though still down for the day before..
The yield on French 10-year bonds ended the day at 0.731 percent on the secondary market, while the yield on the 10-year German note stood at 0.446 percent.