European stock markets plunged on Monday and the euro dropped against the dollar amid fears of political turmoil in Spain and Italy, with banking shares suffering some of the heaviest losses.
London's FTSE 100 index of top companies fell by 1.58 percent to close at 6,246.84 points. Frankfurt's DAX slumped 2.49 percent to 7,638.23 points and in Paris the CAC shed 3.01 percent to 3,659.91 points, its sharpest fall since mid 2012.
Madrid's IBEX 35 gave up by 3.77 percent in value to 7,919.6 points, while Milan's FTSE-Mib nosedived 4.50 percent to 16,539 points.
Markets were jolted after Spanish Prime Minister Mariano Rajoy was pressured to resign amid a growing corruption scandal, while in Italy, the party of former prime minister Silvio Berlusconi showed solid gains in polls ahead of national elections later this month.
Spain's centre-left newspaper El Pais published account ledgers purportedly showing that donations were channelled into secret payments to Rajoy and other top party officials.
Rajoy has dismissed the ledgers as false and has vehemently denies receiving any payments.
"The latest scandal in Spain will continue to unfold over the coming days, placing considerable pressure on the government's bond yields," ETX Capital analyst Ishaq Siddiqi noted.
The rate of return on Spanish government 10-year bonds jumped to 5.438 percent in trading on the secondary market, from 5.208 percent on Friday.
Italian 10-year government bond rates rose to 4.468 percent from 4.329 percent, while benchmark German Bunds fell to 1.612 percent from 1.672 percent, a sign that investors were looking again for a safe haven.
"The tensions in Spain and Italy explain the market losses today," summed up Renaud Murail, a broker at Barclays in Paris.
In New York, US stocks retreated in midday trading on Monday after a dramatic surge on Friday that took the Dow Jones Industrial Average above 14,000 points.
The Dow was down 0.98 percent, while the broad-based S&P 500 also fell by 0.98 percent and the tech-heavy Nasdaq Composite Index was off by 1.34 percent.
In Spain, data released Monday showed that the number of Spaniards officially registered as unemployed rose to 4.98 million in January.
Amid the resurgence in eurozone strains, the European single currency slid to $1.3540 from $1.3637 on Friday, when the euro had reached a 14-month high at $1.3711.
Gold prices fell to $1,666 an ounce from $1,669 on the London Bullion Market last Friday.
A breakdown of the stock losses showed that banks were on the front line, with Santander, the biggest eurozone bank by market capitalisation, shedding 5.7 percent to 5.691 euros in Madrid, while Italian peer UniCredit lost 8.29 percent to 4.25 euros in Milan.
Royal Bank of Scotland was down by 3.49 percent to 328.6 pence in London and Barclays off by 2.83 percent at 291.5 pence.
Finance Minister George Osborne warned during the day that British banks will be broken up if they fail to radically reform by ring-fencing retail operations from their investment arms to avoid any more state bailouts.
In Frankfurt, Commerzbank stock plunged by 5.90 percent to 1.52 euros after Germany's second-biggest bank said that its full-year net profit tumbled to just 6.0 million euros in 2012 after heavy writedowns pushed it into the red in the fourth quarter.
BNP Paribas was off by 4.41 percent at 44.70 euros in Paris, and Credit Agricole gave up 5.42 percent to 7.12 euros to post the biggest loss among CAC 40 stocks.
Asian stock markets had ended mixed Monday on profit-taking after gains fuelled by the upbeat jobs data out of the United States before the weekend, traders said.
Tokyo closed 0.62-percent higher to hit a 33-month high at 11,260.35 points, while Seoul slipped 0.23 percent and Sydney fell 0.28 percent.