World stocks kicked off the final quarter of the year sharply lower on Monday while the yen and government bonds rose as concerns grew that a broader Greek debt default may be in the works after figures showed Athens would miss a deficit target.

The 2012 draft budget approved by Greece's cabinet on Sunday predicted a deficit of 8.5 percent of gross domestic product (GDP) for 2011, well short of the 7.6 percent target.

There was little sign that policymakers were close to agreeing on a definitive solution to the euro zone debt crisis. Officials are discussing ways to leverage the bloc's rescue fund at their meeting on Monday and put pressure on Greece to implement agreed structural reforms.

Uncertainty over the extent of damage to the already fragile European banking sector from a possible Greek default has been driving investors to take refuge in safer assets.

Highlighting these concerns, Belgian and French finance ministers will meet on Monday to discuss ways to shore up the balance sheet of troubled Franco-Belgium group Dexia , which has one of the largest exposures to Greece among non-Greek banks, according to a French daily Les Echos report.

Following an already weak U.S. close on Friday, news over the weekend that Greece will fail to reach their required deficit goals is set to keep sentiment negative, said Jonathan Sudaria, dealer at Capital Spreads.

Traders will be concerned that the bailout packages and strict austerity measures imposed on Greece are still failing to get the debt situation under control or spark any growth.

The MSCI world equity index <.MIWD00000PUS> fell 1.4 percent, approaching a 14-month low set in September.

The October-December period is traditionally the best quarter for equities. Reuters data shows that since 1971 world stocks have on average risen 3.7 percent in the fourth quarter.

European stocks <.FTEU3> fell 2.4 percent while emerging stocks <.MSCIEF> lost 2.8 percent.

U.S. crude oil fell 2 percent to $77.66 a barrel.

Bund futures gained 87 ticks.

The dollar <.DXY> rose 0.6 percent against a basket of major currencies.

The yen rose 0.4 percent to 76.77 yen while the euro fell 0.1 percent to $1.3324.

A Greek default is a sort of Pandora's box no one wants to open. While some markets seem to have priced in such a possibility, it looks like the euro still has some way to go should it happen, said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.