Grim news that Japan has slumped back into recession combined with British Prime Minister David Cameron's warning of fresh global economic turmoil, sent stocks sliding on Monday.
European markets fell and Tokyo tanked by almost three percent. This was after official data showed Japan's gross domestic product (GDP) shrank 0.4 percent in the third quarter compared with the second when the economy contracted by 1.9 percent -- meeting the technical definition of a recession as two successive quarters of shrinking economic output.
In late Monday morning deals, London's benchmark FTSE 100 index of leading shares fell 0.29 percent to 6,635.09 points compared with Friday's close.
Frankfurt's DAX 30 shed 0.45 percent to 9,211.56 points and the CAC 40 in Paris lost 0.44 percent to 4,183.99.
"Japan is officially in recession and comments from David Cameron have done little to calm fears as he talked up the prospect of another global financial crisis, with the eurozone being seen as sitting very much at the heart of the problem," said analyst Tony Cross at traders Trustnet Direct.
Cameron warned that the world could face fresh economic chaos, amid mounting concern that the eurozone remains worryingly close to recession.
- 'Red warning lights' -
"Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy," Cameron wrote in a newspaper article published after the G20 summit in Australia.
Britain's economic recovery faced a "real risk" as the eurozone "teetered on the brink of a possible third recession", he said.
Cameron added there was a "dangerous backdrop of instability and uncertainty" which was also fuelled by Middle East unrest, the Ebola outbreak, Ukraine tensions and stalled global trade talks.
The recession news sent the Japanese yen spiralling to fresh multi-year lows. The dollar rallied to 117.05 yen, a level last seen in mid-October 2007, while the euro touched an August 2008 peak at 146.53 yen.
In company news, Reckitt Benckiser shares dropped 0.28 percent to 5,310 pence in London, after the British household goods firm outlined plans to list its pharmaceutical division on the stock market.
Asian equities mostly sank Monday as the Japanese data fanned expectations of a snap election and the delay of a planned sales tax rise.
Tokyo stocks -- which had surged more than 10 percent this month -- tumbled 2.96 percent.
"Japan shocked the financial world ... after it slipped into a technical recession," added analyst Connor Campbell at traders Spreadex.
"This news has all-but-confirmed reports last week that (Japanese Prime Minister Shinzo) Abe will call a snap election, two years before he is required to, whilst also postponing a sales tax hike."
Elsewhere, Seoul stocks lost 0.77 percent, Shanghai shed 0.19 percent and Hong Kong slid 1.21 percent, while Seoul was almost flat.
- Crisis fears 'overdone' -
Some analysts meanwhile talked down speculation of a new crisis in the world economy.
"The surprise fall in Japanese third-quarter GDP spooked the markets, whilst the euro area economy is clearly struggling, but talk of another global financial crisis is overdone in our view," said RIA Capital Markets macro strategist Nick Stamenkovic.
"The dollar remains the main beneficiary as the US remains an oasis of stability in the global economy, keeping the Federal Reserve on course for higher (interest) rates by mid-2015."
Markets were pressured on Friday as data showed that France and Germany narrowly avoided a new recession in the third quarter, while the broader 18-nation eurozone also faced anaemic 0.2-percent growth after flatlining in the previous quarter.
In foreign exchange deals on Monday, the European single currency dropped to $1.2489 from $1.2523 late in New York on Friday.
The British pound retreated to $1.5628, down from $1.5665 on Friday. The euro eased to 79.91 British pence from 79.94.
On the London Bullion Market, the price of gold rose to $1,187 an ounce from $1,169 late on Friday.