LONDON (AP) — Stocks started the week on a downbeat note as fears over a potential Greek debt default weighed on sentiment despite fresh austerity measures by the country's government.
After Japan's benchmark Nikkei index hit a 28-month low, the mood in Europe was grim, with bank stocks suffering dramatic declines over concerns over their exposure to the debts of Greece in particular.
Monday's retreat in Europe comes despite a weekend insistence by Greek Prime Minister George Papandreou that his country would not default and that it was raising more money from a new property tax to plug a budgetary hole identified by international creditors.
"While the new austerity measures announced by Greece are arguably making the release of the next tranche of financial aid more likely, those are probably not sufficient to reverse the somber mood," said Vassili Serebriakov, an analyst at Wells Fargo Bank.
Greece is being kept solvent by a euro110 billion ($150 billion) international rescue loan package, while an agreement in July to double the bailout size has yet to be implemented. The cash lifeline, without which the country would go broke in a few weeks, is conditional on Athens meeting its ambitious savings targets.
Representatives of the country's creditors are expected in Greece in coming days to conclude a monitoring mission that was suspended on Sept. 2.
If the so-called troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, conclude that Greece isn't doing enough, Greece will not gets its next loans and run out of money sometime in October. That fear was dogging markets, and bank stocks in particular, on Monday.
In Europe, Germany's DAX was 1.9 percent lower at 5,091 while the CAC-40 in France fell 3.2 percent to 2,881. The FTSE 100 index of leading British shares was down 1.2 percent at 5,140.
Bank stocks, such as Deutsche Bank and BNP Paribas, fared much worse than their indexes. Societe Generale suffered a steep decline even though it said it was accelerating plans to raise over euro4 billion ($5.4 billion).
Europe's main markets had been trading even lower before a moderately better than expected opening on Wall Street — the Dow Jones industrial average was 0.5 percent lower at 10,938 while the broader Standard & Poor's 500 index fell 0.4 percent to 1,150.
In the febrile market environment, the euro oscillated wildly. After falling to $1.3495, its lowest level since mid-February, it has rallied to trade 0.4 percent higher on the day at $1.3666.
Europe's debt crisis has been one of the main reasons behind the turmoil in financial markets over the past few weeks, though concerns over the global economic recovery have contributed, too.
There's a raft of economic data out this week, particularly from the U.S., and the hope is that many indicators will recover from the battering they took last month when concerns over a possible U.S. default hung heavily on sentiment.
This week's U.S. dataflow could have a big impact on whether the Federal Reserve decides to enact another round of monetary stimulus to reignite the faltering U.S. economic recovery.
"These numbers will fine-tune speculation as to whether the Fed will take further policy action at the September 21 meeting," said Jane Foley, an analyst at Rabobank International.
Selling dominated the Asian trading session, where the Nikkei 225 stock average in Tokyo closed 2.3 percent lower at 8,535.67 — its lowest closing level since April 2009. Japan's powerhouse export sector was hit hard by the ongoing strength of the Japanese currency, which makes products more expensive overseas.
The weekend resignation of Japan's new trade minister after just eight days in office also unnerved the Tokyo market.
The exceptionally brief tenure of Yoshio Hachiro undermined confidence in Prime Minister Yoshiko Noda, who is tasked with reviving the economy and speeding up Japan's recovery from the March 11 earthquake, tsunami and nuclear crisis.
In Hong Kong, meanwhile, the benchmark Hang Seng index shed 4.2 percent to 19,030.54 while Australia's S&P/ASX 200 plunged 3.7 percent to 4,038.50. Mainland China shares were closed for a national holiday.
Oil prices were under pressure alongside faltering stock markets — benchmark oil for October delivery was down 34 cents to $86.90 in electronic trading on the New York Mercantile Exchange.
Tomoko A. Hosaka in Tokyo contributed to this report.