The selling came after a mixed day in Asia, where the positive vibes from a US jobs report were offset by growing fears about the European outlook as well as Chinese Covid lockdowns and geopolitical tensions.

Paris, Frankfurt and London all sank sharply at the open after Russia's Gazprom said it would not restart gas supplies to Europe, citing problems with a pipeline.

European markets, euro tumble as Russia fans energy crisis, Source:freepik.com

The announcement came the same day as the G7 nations said they would work to quickly implement a price cap on Russian oil exports, a move that would starve the Kremlin of critical revenue for its war effort.

The news, which came after European trading ended, ramped up an energy crisis in the continent caused by sanctions on Moscow for its invasion of Ukraine in February.

It has sent shockwaves through the eurozone economy and fanned expectations it will sink into recession, while sending the euro tanking to a 20-year low against the dollar. The single currency hit a nadir of $0.9878 at one point.

The issue has given the European Central Bank a huge headache -- it is forced to lift interest rates as it struggles to contain runaway inflation.

Policymakers are due to announce a second straight lift at its meeting this week, with some observers betting on a 0.75 percentage point rise.

"The outlook is poor for Europe. It started to get choppy at the tail end of last week, and it is almost certainly going to get worse," Gordon Shannon, of TwentyFour Asset Management, said.

"The ECB had only just started to catch up with the Fed in terms of hiking rates, but if we are going into a prolonged recession, I think this slows down their attempts."

The move offset a broadly positive payrolls report showing US employment growth moderating and unemployment ticking higher, easing pressure on the Federal Reserve to sharply lift interest rates.

In response to the figures, traders lowered their expectations for a third successive three-quarter point hike this month, with many now predicting 50 basis points.

"The increase in the participation rate and a softening in average hourly earnings may be a tentative sign that intense labour market tightness is starting to ease slightly," said National Australia Bank's Tapas Strickland.

He added that it "eases some of the fears stemming from other indicators such as job openings. Markets interpreted the print as lessening the chances of a 75 basis point hike".

Still, the dollar continued to strengthen across the board, holding above 140 yen -- a 24-year high -- while the pound was on in on its way to hitting levels not seen since 1985.

However, all three main indexes in New York reversed their gains after the Gazprom announcement.

And in Asia on Monday, Hong Kong was the biggest loser, with tech firms hit by reports that the United States was considering imposing fresh limits on investments in Chinese firms.

Tokyo, Seoul, Taipei, Manila, Bangkok and Wellington also fell but there were gains in Shanghai, Sydney, Mumbai Singapore and Jakarta.

The Gazprom move helped lift oil prices Monday, with buying also supported by talk that OPEC and other major producers are considering cutting output at their meeting later Monday.

Investors were also dealing with more bad news out of China, where tens of millions of people across several cities have been thrown into lockdown as part of officials' zero-Covid strategy.

The measures follow an extended shutdown in Shanghai earlier in the year that battered the world's number two economy.

Observers said Chinese authorities were unlikely to budge ahead of a key Communist Party meeting in October, where Xi Jinping is expected to be handed a third five-year term as president.

"Following this, it is unclear whether China will start to pivot away from its zero-Covid policy," said NAB's Strickland.

"For as long as the policy exists, any stimulus measures are unlikely to gain traction, amid a challenging time for the Chinese property market and the economy in general."

- Key figures at around 0720 GMT -

Frankfurt - DAX: DOWN 1.7 percent at 12,824.16

Paris - CAC 40: DOWN 2.0 percent at 6,047.44

EURO STOXX 50: DOWN 1.3 percent at 3,500.04

London - FTSE 100: DOWN 0.8 percent at 7,224.56

Tokyo - Nikkei 225: DOWN 0.1 percent at 27,619.61 (close)

Hong Kong - Hang Seng Index: DOWN 1.0 percent at 19,266.80

Shanghai - Composite: UP 0.4 percent at 3,199.91 (close)

Dollar/yen: UP at 140.34 yen from 140.16 yen on Friday

Euro/dollar: DOWN at $0.9909 from $0.9957

Pound/dollar: DOWN at $1.1476 from $1.1515

Euro/pound: DOWN at 86.30 pence from 86.45 pence

West Texas Intermediate: UP 2.3 percent at $88.84 per barrel

Brent North Sea crude: UP 2.5 percent at $95.36 per barrel

New York - Dow: DOWN 1.1 percent at 31,318.44 (close)