European shares closed 1.7% lower on Monday as volumes dwindled at the start of Christmas week.
The FTSEurofirst index of top European shares closed at 809.78 points. The index has shed nearly half its value so far this year in a credit crisis that has driven several major economies into recession.
The Paris CAC 40 fell 2.31% and the Frankfurt Dax was down 1.23.
In London, the FTSE 100 index was down 37.77 points, 0.9%, at 4,249.16. The index closed down 1% on Friday.
Earlier in the day China cut interest rates and Japan warned it was sliding deeper into a recession.
Contributing to the gloom, the Organisation for Economic Cooperation and Development warned that up to 25 million people around the world could lose their jobs between now and 2010.
Auto shares fell after Toyota forecast its first operating loss due to a global slide in car sales and a rise in the yen.
Volkswagen fell 5.9%. BMW, Daimler, Peugeot and Renault fell 1.5% - 4.6%. French tyremaker Michelin fell about 3% after saying it is cutting operations to cope with a decline in demand for tyres.
Oil shares also fell as crude dropped more than 2%.
Shares in Hong Kong earlier fell 3.3% and Shanghai was down 1.52%. However, in Tokyo, the Nikkei index rallied by 1.57% at the close.
In Australia on Monday, the S&P/ASX200 index was down 58.3 points, or 1.61%, to 3557.4 points, while the All Ordinaries index was down 54.9 points, or 1.55%, to 3492.3 points.
On the Sydney Futures Exchange, the March share price index futures contract was down 56 points to 3543 points on a volume of 12,630 contracts.
The NZX 50 index closed up 24 points to 2679 on turnover of $28 million.
Telecom was unchanged at $2.26 and Contact Energy was unchanged at $7.05.
Fletcher Building gained 27 cents to $6.10, Mainfreight gained 12c to $4.60, The Warehouse lost 1c to $3.53 and PGG Wrightson lost 10c to $1.05.
The New Zealand dollar was trading at 57.63 US cents, 84.55 Australian cents, 38.62 pence, 51.94 yen and 0.4121 euro. The Trade Weighted Index was 56.22.