European shares extended losses to more than 2 per cent today, falling to seven-month lows, as inflation and interest rate worries sparked selling and as mining stocks dropped on the back of falling metals prices.
Financials also weighed, with Euronext and Deutsche Boerse falling 8 per cent and 6 per cent respectively, and Royal Bank of Scotland and Alliance & Leicester falling 3 and 8 per cent respectively.
A dip in oil prices to below $70 a barrel hit heavily weighted energy stocks.
By 11:30am, the FTSEurofirst 300 index of top European shares was down 2.3 per cent at 1,236.6 points, its lowest intraday level since December 1 st2005.
US stock index futures pointed to opening losses of around 0.5 per cent on Wall Street.
Investors awaited US producer price index data at 1230 GMT, which will be watched for all-important clues on how fast inflationary pressures are building up, although US consumer price index data due on Wednesday will be the main focus of inflation-watchers' attention.
A weaker-than-expected German ZEW investor confidence report failed to lift falling European shares as market observers said central banks were more likely to make rate decisions on the basis of inflation data rather than sentiment indicators.
"This will make very little difference to the European Central Bank as it has its eye more on rising inflation risk than growth momentum in the euro zone and the bias for rates is still pointing higher," said David Brown at Bear Stearns, who continues to expect the next rate hike to come at the end of August, taking rates up to 3 per cent.
Around Europe, London's FTSE 100 index and Paris's CAC 40 both shed 2.3 per cent, while Frankfurt's DAX dipped 2 per cent and the Swiss Market Index was down 2.2 per cent in Zurich.
Among the miners, Anglo American fell 5.4 per cent to be the top DJ Stoxx 50 loser. Rio Tinto fell 3.4 per cent.
Financials were also among the biggest decliners. Shares in Royal Bank of Scotland lost 4.3 per cent even after the bank predicted that first-half results would be in line with analysts' expectations after good income growth early this year.
Alliance & Leicester, was down 6.2 per cent after Credit Agricole launched a bid for Greek bank Emporiki. Dealers said the French bank had been seen as a potential suitor for A&L. Agricole was down 2.2 per cent.