Worries about the impact of fraud charges against Goldman Sachs rattled stock markets on Monday, sending investors in search of less speculative currencies and boosted government bonds.
It combined, in Europe, with concerns over the economic impact of disruption of commerce due to the cloud of Icelandic volcanic ash, which has already cost the airline industry hundreds of millions of dollars, left millions of passengers stranded, and hit importers and exporters.
The U.S. Securities and Exchange Commission on Friday charged Goldman with fraud over its handling of a debt product tied to subprime mortgages.
The result was a wave of risk aversion across financial markets. Some analysts have also been suggesting that equities in particular are due for a pause after world stocks hit a new year high last week.
What is there to reassure markets and provide that good news to turn around the negative risk environment? It's not clear that there's anything positive coming, said Robert Ryan, currency strategist at BNP Paribas in Singapore.
MSCI's all-country world index was down 0.7 percent, with its more volatile emerging market component <.MSCIEF> off close to 2 percent.
The latter was on track for its biggest one day fall since February 5.
In Europe, where the airline industry has ground to a halt as a result of the volcanic ash cloud from Iceland, the pan-European FTSEurofirst 300 <.FTEU3> was down half a percent.
Earlier, in Japan, the Nikkei <.N225> closed down 1.74 percent. Market players said the Nikkei was ripe for profit-taking after surging to an 18-month peak earlier this month, in a rally that spurred worries the market may have risen too far, too fast.
The low-yielding yen rose broadly in a move that reflect concerns among investors.
People are buying yen on the back of increasing risk aversion. It's risk-off on the Goldman news and worries over this week's EU/IMF meeting on Greece. That's also hitting the euro, said Michael Hewson, analyst at CMC markets.
Talks between the EU and IMF, expected to start on Monday, have been delayed to later in the week due to the ash cloud.
The euro was trading down close to 1 percent versus the yen at 123.30 yen after shedding around 1.5 percent on Friday after the Goldman news.
It was down around 0.4 percent at $1.3450.
Euro zone government bonds opened higher as investors sought relative safety.
(Additional reporting by Neal Armstrong, editing by Mike Peacock)