Expectations of a bleak company results season, from U.S. banks to Asian industry giants, pummeled shares on Tuesday and bolstered government debt.
European shares fell 2.7 percent, wiping out all the gains achieved since the end of 2008 and slipping for a fifth session running .EU, while Japan's Nikkei .N225 shed 4.8 percent after being closed on Monday for a public holiday.
The euro slid to a one-month low against the dollar as the European Central Bank looked set to cut interest rates again this week, while oil continued to drop on fears about reduced energy demand as the world economy shrinks.
The ECB is expected to cut rates by a half point to 2 percent on Thursday, according to a Reuters poll.
Two-year euro zone government bond yields briefly fell to their lowest since the launch of the euro in 1999, according to Reuters charts, as a new wave of risk aversion took hold.
"It's a downturn in risky assets, another round of profit-taking on equities," said Alain Bokobza, head of pan-European equity and cross-asset research at Societe Generale Asset Management.
Oil fell toward $36 a barrel to its lowest level in three weeks as further signs the world economy was slowing sharply dampened demand expectations.
U.S. light crude for February delivery fell $1.15 to $36.44 a barrel. Prices have fallen by almost $15 in the past week.
MSCI's all-country world share index was down about 1.5 percent, its fifth negative performance in a row.
BRACED FOR POOR RESULTS
Investors are braced for a dismal company reporting round.
U.S. banking giant Citigroup (C.N) could record a fourth-quarter operating loss of over $10 billion, the Wall Street Journal reported on Monday, while U.S. aluminum producer Alcoa (AA.N) announced a fourth-quarter loss.
Asia's export companies are also hurting as major overseas markets such as the United States are mired in recession.
Japan's Sony Corp (6758.T) will likely suffer an annual operating loss of about $1.1 billion, its first such loss in 14 years, a person with knowledge of the matter said.
Toshiba Corp (6502.T) expects a loss of about $2.2 billion according to Japanese media reports. Shares in both companies shed nearly 9 percent in response.
