In Europe, the FTSE 100 index of leading British shares was down 76.23 points, or 1.6 percent at 4,637.74 while Germany's DAX fell 95.78 points, or 1.8 percent, to 5,213.33. The CAC-40 in France was 58.69 points, or 1.7 percent, lower at 3,436.31.
Shanghai's market led sharp declines across Asia, plummeting nearly 6 percent, and futures markets pointed to big falls later when Wall Street opens. Dow futures were 157 points, or 1.7 percent, at 9,164 while the broader Standard & Poor's 500 futures fell 18.5 points, or 1.8 percent, to 987.30.
Concerns about the state of retailing in the US are primarily to blame for the latest bout of jitters in the markets, which have come after a month-long rally has sent many of the world's main stock markets to new highs for 2009.
A disappointing consumer confidence survey on Friday combined with a raft of downbeat earnings from the likes of Abercrombie & Fitch Co., JC Penney Corp. and Nordstrom Inc. to fuel concerns that that the world economy may not recover as swiftly as many in the markets have been hoping. Investors are fully aware that without the support of the US consumer, which accounts for around 70 percent of the US economy and 20 percent of the global economy.
“Friday's disappointing consumer data from the US has reignited fears over the pace of the US-global recovery,” said Stuart Bennett, an analyst at Calyon Credit Agricole.
Oil prices also continued to fall sharply amid concerns that global demand may not be as high as thought. Benchmark crude for September delivery was down $1.57 to $65.94 a barrel on the New York Mercantile Exchange, after tanking $3.01 on Friday.
Analysts said the near $5 decline in oil prices over two trading days has provided another reason for stock investors to book profits. Many of the world's stock markets have rallied around 50 percent since the March lows.
“The much weaker oil price may be a starting point for traders as they continue to book profits after the strong recent run,” said Matt Buckland, a dealer at CMC Markets. Investors seemed little comforted by news that Japan joined Germany and France as developed economies broken free from recession. Japan, the world's second-largest economy, grew 0.9 percent in the second quarter compared to the prior quarter as export sales picked up after the country's deepest slump since World War II.
Japan's return to growth -- thanks to a 6.3 percent uptick in exports along with government stimulus measures -- marked the end of a yearlong recession. But traders, counting on even stronger growth for the quarter, were underwhelmed.
“Investors have already expected a rise in Japan's GDP during the April-June quarter. In that sense, there were no surprisers, and investors were not impressed by the figure,” said Naohiko Miyata, chief technical analyst at Mitsubishi UFJ Securities Co. Ltd.
Despite the growth, Japan's Nikkei 225 stock average dropped 328.72 points, or 3.1 percent, to 10,268.61 0.
In China, Shanghai's benchmark tumbled 5.8 percent to 2,870.63 amid more jitters about lofty stock prices and a possible tightening of bank lending policies. Hong Kong's Hang Seng dived 3.6 percent to 20,137.65.
South Korea's Kospi dropped 2.8 percent in 1,565.49 and India's Sensex was down 3 percent. Markets in Taiwan, Australia and Singapore fell back over 1 percent.
The dollar was down 0.2 percent at 94.62 yen while the euro fell 0.4 percent to $1.4122.