Investors set the tone in Paris, where the CAC 40 index shed 1.69 per cent to 6,144.66 points. In London, the FTSE index of 100 leading shares fell 1.3 per cent to 6,307.3 points. German issues followed suit, with the DAX index dropping 1.45 per cent to 6,678.07 points in Frankfurt.

In the 11-nation euro zone, the Euro Stoxx 50 index fell 1.45 per cent to 4,886.49 points. The euro was languishing below 87 US cents at 0.8696 dollars.

Investors were nervous after sharp losses on Wall Street on Friday, when the tech-rich Nasdaq saw 3.2 per cent wiped off its value. The Dow Jones Industrial Average fared only slightly better, shedding 1.2 per cent.

The Hong Kong market had a poor start to the week after a public holiday on Friday, with the Hang Seng index dropping three per cent. The Tokyo market was closed for the day.

Investors were nervously awaiting Financial results from a number of US corporations this week, including Yahoo, Motorola, General Electric and General Motors, which many analysts expect to fall short of expectations. Technology stocks were hit hardest by the sell-off.

In London ARM Holdings led the FTSE 100 fallers, tumbling 5.9 per cent to 682 pence. Cable company Telewest dropped 5.8 per cent to 130 pence, while Internet service provider Freeserve was showing a loss of five per cent at 205 pence. Biotech group Celltech dropped 5.9 per cent to 1,275 pence on the news of negative clinical trial results of its Relaxin product. But BT bounced back 3.2 per cent to 764 pence after its financial director, Robert Brace, announced his resignation on Friday. He will be replaced by Philip Hampton, a financial director at gas firm BG.

Technology issues were also among the worst hit in Frankfurt. Semi-conductor maker Infineon shed 3.24 per cent to 51.60 euros, software group SAP dropped 3.33 per cent to 235.50 euros, while industrial giant Siemens was showing a loss of 2.69 per cent at 141.0 euros.

Deutsche Telekom fell 0.71 per cent to 37.59 euros after German business daily Handelsblatt said that US lawmakers would oppose the group's merger with VoiceStream this week.

In Paris, France Telecom dropped 3.65 per cent to 110.80 euros amid speculation that it might buy telecoms operator Equant. Alcatel fell 2.93 per cent to 72.80 euros, while Thomson Multimedia tumbled 5.88 per cent to 50.45 euros. Only stock in Equant rose, by 3.86 per cent to 40.10 euros.