German government bond yields hit their lowest level since September on Tuesday and European shares fell as investors returning from a long weekend switched to safer assets after surprisingly weak U.S. jobs data.
The cost of insuring Italian and Spanish debt and their bond yields also climbed higher, reflecting the risk aversion and concerns about those economies.
But U.S. stock markets, which digested the employment report on Friday when Europe was shut for Easter, were poised to end a four-session losing streak and open higher with attention turning to the start of the quarterly company reporting season.
The concerns about growth in the world's largest economy also overshadowed positive trade numbers from Germany and China, with both nations enjoying strong rises in exports, although weak Chinese import numbers took some of the gloss off the data.
Our feeling is we are back to looking primarily at the shape of the U.S. economy in the second quarter, said Adam Cole, head of FX research at RBC Capital Markets.
I think the risk is even a normal quarter will be seen as disappointing, he said.
Friday's report showed payrolls grew by just 120,000 in March, far below the expected increase of 203,000.
Ian Williams, an equity strategist at Peel Hunt, said the data showed that the Federal Reserve was right to be cautious about the U.S. recovery.
Although that could be interpreted as increasing the likelihood of sustained Fed support, the risk off mood that prevailed in the early days of the second quarter seems likely to persist for now, he said.
The key FTSE Eurofirst .FTEU3 index of top European shares was down 0.75 percent at 1042.07 with Germany's DAX index .GDAXI down 0.75 percent despite the trade data.
The Euro STOXX 50 volatility index .V2TX, Europe's main barometer of investor appetite for risky assets such as stocks, also surged 9.6 percent to a five-week high.
Global stocks also eased as major Asian markets saw a second straight day of losses with higher-than-expected Chinese inflation data weighing on sentiment as it reduced the hopes of further monetary policy easing.
The MSCI world equity index .MIWD00000PUS was down 0.25 percent to near one-month lows at 234.74.
SPAIN, ITALY IN SPOTLIGHT
A weaker U.S. economy could hurt indebted European economies and this concern helped pushed safe-haven German government bond yields lower, and sent yields on riskier Italian and Spanish debt higher.
Those moves extended a trend that began last week in the wake of a disappointing Spanish bond auction and will likely influence demand at a German 10-year bond sale on Wednesday and an Italian debt auction on Thursday.
Italian yields rose across the curve with 10-year bond yields up 12 basis points at 5.56 percent, while Spanish 10-year yields were 17 basis points higher at 5.95 percent after rising around 25 basis points last week.
In the foreign exchange market the euro eased against the dollar, dipping 0.25 percent to $1.3070, having bounced off a four-week low of $1.3033 hit on Monday.
The big mover was the Japanese yen which hit a one-month high against the dollar and the euro after the Bank of Japan kept policy on hold, maintaining its view that the economy is showing signs of picking up.
In commodity markets investors were more worried about the soft Chinese import data, which raised concerns about demand from the world's second biggest economy.
Front-month Brent crude futures were down $1.10 at $121.56 a barrel. The contract slipped as low as $121.02 on Monday, the lowest since March 15. U.S. oil was down 60 cents to $101.80.
Copper prices also fell due to the Chinese data as investors are watching for signs that China can avoid a hard landing as it tweaks monetary and fiscal policies to cut rising costs and help businesses hit by the global downturn.
However, gold prices were on the rise as hopes grew that the sluggish employment market in the United States could spark a fresh round of U.S. quantitative easing.
Ultra-loose U.S. monetary policy, which keeps real interest rates and consequently the opportunity cost of holding gold low, is a key driver of higher bullion prices.
Spot gold was up 0.2 percent at $1,643.80 an ounce, while U.S. gold futures for June delivery were up $1.20 an ounce at $1,645.10.