Stocks took another hit Monday after Greece admitted it won't meet its deficit reduction targets, raising renewed fears that the country will not get crucial bailout loans it needs to avoid a default. The euro hit a near ten-year low against the yen and a near-2011 low against the dollar.
The renewed bout of jitters were stoked by Sunday's statement from the Greek finance ministry that the deficit this year will likely be 8.5 percent of its gross domestic product, higher than the 7.8 percent previously anticipated.
Further bad news emerged Monday as the government submitted its 2012 budget to Parliament. Blaming a deeper-than-expected recession, it said the deficit next year will be higher than originally though at 6.8 percent of GDP as opposed to 6.5 percent, and that its debt load will hit a staggering 172.7 percent of national income.
The revelations that Greece is finding it increasingly difficult to reduce its borrowings in spite of all its austerity measures has raised fears that international creditors will effectively pull the plug on its bailout accords. That could have massive repurcussions throughout Europe especially if the banks stop lending to one another for fear of each other's exposure to Greek debt. French-Belgian bank Dexia has been at the forefront of investor concerns Monday after Moody's warned it may downgrade its rating.
"News that Greece will miss its deficit-reduction targets _ again _ and concern about the liquidity of French-Belgian bank Dexia have markets on edge," said Sal Guatieri, an analyst at BMO Capital Markets.
In Europe, Germany's DAX was down 3 percent at 5,340 while the CAC-40 in France fell 2.4 percent to 2,910. The FTSE 100 index of leading British shares was 1.8 percent lower at 5,036.
In the U.S., the Dow Jones industrial average was down 0.6 percent at 10,851 while the broader Standard & Poor's 500 index fell by the same rate to 1,125.
Without the euro8 billion ($10.8 billion) loan due from the bailout, Greece has said it won't be able to pay all its bills starting in mid-October. Greece has been reliant since May 2010 on regular loans from a euro110 billion ($150 billion) bailout from other eurozone countries and the International Monetary Fund. It was granted a second euro109 billion package in July, but the details of that deal are still being worked out.
Under the first bailout, Greece has to achieve certain targets in order to get the cash it needs to pay off its bondholders and pay salaries and benefits. Representatives of the so-called troika _ the European Commission, European Central Bank and IMF _ are in Athens now, trying to assess whether Greece has done enough to get its hands on the next batch of bailout cash.
Finance ministers from the 17 euro countries, including Greece's Evangelos Venizelos, are meeting later Monday in Luxembourg to assess the latest Greek developments.
The euro was weighed down by the downbeat news, trading 0.6 percent lower at $1.3335. Earlier, the currency had fallen to $1.3307, its lowewt level since January.
Looking ahead, there's a lot of potential news this week that could affect the market mood. A raft of U.S. economic data kicks off later with the monthly manufacturing survey from the Institute for Supply Management. A collapse in its main indicator in August was one of the triggers behind the turmoil that has gripped financial markets since.
The U.S. data this week culminates with Friday's nonfarm payrolls report for September. The figures often set the tone in markets for a week or two and another weak number could reinforce concerns over the world's largest economy.
Central banks in Europe will also feature, with both the European Central Bank and the Bank of England under pressure to do more to boost growth. A particularly grim eurozone manufacturing survey has added to expectations that the ECB will cut its main interest rate from the current 1.5 percent some time over the next couple of months.
Though inflation in both the eurozone and Britain is running uncomfortably above target, investors will be looking to see if the ECB reverses course and starts cutting rates, just two months after raising them, and if the Bank of England authorizes another monetary stimulus.
The losses in Europe followed a big retreat in Asia, with Hong Kong's Hang Seng leading the way lower with a 4.4 percent decline to 16,822.15. Japan's Nikkei fell 1.8 percent to 8,545.48 even after a government survey showing an improvement in business confidence among Japanese manufacturers. Meanwhile China's main index in Shanghai declined 0.3 percent to 2,359.22.
Oil prices tracked equities lower _ benchmark oil for November delivery was down $1.76 to $77.44 per barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.