Worries about out-of-control government debt on both sides of the Atlantic swept across financial markets again on Monday, knocking stocks sharply lower and pushing up prices of bonds deemed to be safe havens.
As well as ongoing fears about Italy and other debt-strapped euro zone countries, attention was beginning to turn to the United States, where a bipartisan super committee looks set to miss a deficit reduction deadline.
Europe is not the only one with debt problems ... in the United States there's a political gridlock, said David Thebault, head of quantitative sales trading, at Global Equities.
World stocks as measured by MSCI <.MIWD00000PUS> were down 0.9 percent for a more than 11.5 percent year-to-date loss. More volatile emerging market stocks <.MSCIEF> lost 1.7 percent.
In Europe -- the heart of the debt storm -- the FTSEurofirst 300 <.FTEU3> index lost 1.8 percent, tumbling to a six-week low and sitting more than 16.5 percent lower for the year.
Japan's Nikkei average <.N225> fell to its lowest closing level since March 2009 as the U.S. debt worries added to existing ones about Europe.
In the United States, sources said the bipartisan deficit-reduction committee will announce that they failed to meet their deadline to find $1.2 trillion in budget cuts over the next decade.
Tomorrow could be scary, if the U.S. misses its deadline, Yutaka Miura, senior technical analyst at Mizuho Securities.
On euro zone sovereign bond markets, spreads between troubled countries' and core German bonds yields widened. This included Spain, where the center-right won an overwhelming general election vote.
Despite the widening spreads, 10-year Italian bond yields were steady and below the key 7 percent level reached last week. Plus-7 percent yields have in the past signaled a countries need for a bailout.
Investors were favoring German debt as the safest bet in the current climate, but there were still concerns.
Bunds didn't trade well last week, but a lot of that was a move out of anything European, said one trader.
Nothing's really changed and liquidity is getting progressively worse. It feels like year-end is going to be particularly bad and that will just exaggerate moves either way.
The euro fell to a six-week low versus the Japanese yen -- seen as a safe haven.
It was also 0.4 percent down against the dollar at $1.345.
(Additional reporting by Blaise Robinson and Kirsten Donovan; editing by Patrick Graham)