European stocks closed lower across the board Monday, despite recovering form earlier lows, with banks suffering the worst of the selling on continued concerns over the state of the U.S. economy.
Asian equity markets took a severe hammering, with Japan closing more than 4 percent down, while U.S. stocks were also lower.
The dollar remained near record lows against the euro and Nymex crude oil spiked to over $103 a barrel.
Europe's biggest bank HSBC bucked the trend and gained 3.1 percent as investors welcomed a dividend hike after the bank posted a rise in group pretax profit and said strong gains in Asia helped it absorb a $17.2 billion hit for bad debts.
Elsewhere in Europe, banking stocks took a battering.
Shares of UBS were 3.3 percent lower after a delayed start to trading, as fears mounted about continued losses from weakening credit markets.
"Further writedowns appear likely and could be large," said analysts at rival bank Credit Suisse.
They estimated another 15.5 billion Swiss francs ($14.85 billion) in potential writedowns at UBS and lowered their target price for UBS to 57 francs from a previous 67 francs.
The Dow Jones STOXX banking index slipped 1.7 percent, while the financial services index dipped 0.8 percent and the insurance sector fell 1.8 percent.
"The medium term is very difficult to predict as there are a lot of unanswered questions around banks' balance sheets," said Thierry Lacraz, strategist at Swiss bank Pictet.
"Estimates show a lot of shareholder equity is having to be written down, which will make banks shy to lend this year, and we will also have more dilution from capital increases," Lacraz added.
The fact that the banks can't bring pending IPOs to market means that they're using part of their capital for operations that brings no revenue for the time being, he said.
In the media sector, Financial Times publisher Pearsonbeat expectations on full-year pretax profit and said it was confident 2008 would be another good year. Shares fell 2.6 percent with the market.
British-listed miner Xstrata gained 1 percent after reporting a 13 percent rise full-year net profit, shy of the 15 percent rise analysts expected.
Shares in EADS soared 9.2 percent after the European defense group successfully defeated U.S. rival Boeing to a $35 billion refueling tanker contract.
And Volkswagen agreed to increase its stake in Swedish truck makerScania to more than 68 percent, a move seen to pave the way for a merger with MAN.
In politics, Russian outgoing President Vladimir Putin's successor Dmitry Medvedev sailed through the country's national vote and pledged a policy of continuity in his first official address.
-- Reuters contributed to this report