European stocks closed sharply lower on Monday, with investor sentiment curbed by the growing instability in Ukraine's Crimea region.
The pan-European FTSEurofirst 300 provisionally closed lower by 2.2 percent at 1,318.8 points. The German DAX fell 3.3 percent — it's biggest fall since May 2012 — and the U.K.'s FTSE 100 closed provisionally down 1.5 percent, at a two-week low.
The Euro Stoxx Banks index closed down 3.8 percent, in its biggest fall since August 2013.
Russian stocks closed lower by 10.8 percent, with stocks in Germany taking a big hit due to the country's exposure to Russia. The DAX's big drop was attributed to Germany's heavy dependence on Russian gas; the country imports around 40 percent of its gas and 35 percent of its oil from Russia.
Companies with high exposure to Russia and Ukraine include French carmaker Renault, down 5 percent, and Italy's UniCredit, which dropped 5.0 percent and 4.1 percent respectively.
Moscow-listed shares of MegaFon closed down 11 percent, while Rosneft closed down 4 percent, Gazprom slipped 14.5 percent and Sberbank sunk 15 percent. Shares in Russian companies QIWI and Mobile Telesystems were also hit, closing down 11.0 and 12.6 percent respectively.
Russian ultimatum for Ukraine
The Interfax news agency quoted a Ukrainian defense ministry source on Monday as saying that Russia had given Ukrainian forces in Crimea until 3 a.m. GMT on Tuesday to surrender two warships, or face military assault.
Putin declared at the weekend that he had the right to invade Ukraine in order to protect Russian interests and citizens, in what the U.K. foreign office termed "the biggest crisis in Europe in the twenty-first century''. In response, Ukraine called up reservists and the United States threatened Russia with economic isolation.
(Read more: Global tensions over Ukraine 'highest since 9/11')
European markets
European Central Bank President Mario Draghi spoke to the European Parliament on Monday and said that the situation in Ukraine should be watched, but that the economic impact on the euro area would likely be small, due to its limited trade links with Ukraine.
(Read more: ECB's Draghi says inflation expectations firmly anchored)
Meanwhile euro zone manufacturing activity slowed slightly in February, according to Markit's purchasing managers index (PMI). The reading came in at 53.2. A figure above 50 indicates that manufacturing has expanded.
Despite the dip, there was positive news in the currency bloc's four biggest economies: Germany; France; Spain and Italy all recorded a rise.
(Read more: Euro zone manufacturing activity slows)
Across the Atlantic, U.S. stocks declined on Monday, along with other global equities. Investors bypassed better-than-forecast U.S. economic reports, including positive readings on manufacturing activity in February and consumer spending.
Meanwhile, the final HSBC reading published on Monday showed China's factory activity fell to a seven-month low of 48.5 in February — a third consecutive monthly decline.
(Read More: China's factory activity worsened further in February)
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