European stocks got hammered on Monday and the euro tumbled as well, as investors moved into safe assets. Rising fears over Europe's sovereign debt crisis and economic growth concerns in Europe and the U.S. is driving the move away from equities.

The yield on the benchmark 10-year German government bond fell to well below two percent -- a new record. The Stoxx Europe 600 index fell 4.1 percent Monday, closing at 223.45.

Germany's DAX lost 5 percent, and France's CAC fell 4 percent, while the FTSE closed down 3.5 percent.

U.S. markets were closed for the Labor Day holiday, but Tuesday is shaping up to be a difficult return from the extended weekend break.  Late Monday, PIMCO CEO Mohamed El-Erian wrote in a post on CNBC that investors must be ready to, Tighten those seat belts. It will be a bumpy and volatile week as markets are held hostage to policy developments in both America and Europe.

Once again, already fragile U.S. markets will be influenced by developments on the other side of the Atlantic-and in a week in which there is great anticipation for President Obama's mission critical speech on the American economy, El-Erian said.

Obama is to address Congress on Thursday, unveiling a major new jobs initiative. His speech is slated for national broadcast.

In Europe Monday, banking stocks were clobbered over concerns about growth and lawsuits filed against 17 lenders Friday by the top U.S. federal housing regulator which said they sold $196 billion in risky home loans over four years to Fannie Mae and Freddie Mac without reasonably disclosing the risks.

Shares of Royal Bank of Scotland group, one of the banks named in the lawsuit, fell 12 percent Monday, while Deutsche Bank, another named, fell 8.9 percent in trading.

The same old worries and uncertainty that have been haunting the markets over the past year and a half returned today, reminding investors that the European debt crisis is still the biggest single threat to the global economy, Angus Campbell, head of sales at Capital Spreads, told the Guardian in the UK.

Trading was stung by Friday's U.S. August jobs report, which showed zero net jobs were created, while unemployment remained at 9.1 percent -- worse than economists had expected.