World markets retreat after last week's rally

The declines came despite gains Friday on Wall Street, which notched its first five-day advance since July 2007. Some traders held back ahead of the Institute for Supply Management's November manufacturing survey due later Monday for further clues about the strength of the U.S. economy, a vital export market.

Investors "aren't sure what they're supposed to do at this point," said Tsuyoshi Nomaguchi, a strategist for Daiwa Securities in Tokyo.

India's benchmark Sensex index reversed early gains, falling 2.8 percent to 8,839.87 in the wake of the terrorist attacks in Mumbai that left 172 people dead.

In Tokyo, the benchmark Nikkei 225 stock average lost 115.05 points, or 1.4 percent, to close at 8,397.22 after advancing 7.6 percent last week. Investors sold exporters as the yen strengthened, which erodes their overseas earnings.

Markets in South Korea, Australia and Singapore also fell.

As trading opened in Europe, the FTSE 100 index of leading British shares fell 2.2 percent at 4,192.38. Germany's DAX was 3.1 percent lower at 4,522.98 and France's CAC-40 slipped 2.5 percent to 3,179.71.

Stocks in Thailand reversed early gains as investors weighed prospects that the country's political crisis will be resolved soon. Anti-government protesters have occupied Bangkok's two main airports for nearly a week, cutting off air freight, stranding tourists and crippling the economy. The benchmark SET index fell 2.7 percent to 390.92.

Bucking the trend were Hong Kong and mainland China, where key indices rose on expectations of further measures by the Chinese government to boost the economy after last month's big interest rate cut and anouncement of a multibillion dollar stimulus package.

Hong Kong's Hang Seng index closed up 220.60 points, or 1.6 percent, to 14,108.84, continuing its rally from last week, when it rose nearly 10 percent. China's Shanghai Composite index gained 1.3 percent to 1,894.61.