European stock markets have given up early gains, which had been triggered by the European Central Bank saying it intended to buy up government debt.
Spanish and Italian markets jumped in early trading before slipping back, while major European indexes slid sharply in mid-morning trading.
Markets tumbled last week, forcing the ECB to intervene to address concerns the debt crisis is spreading.
Yields on Spanish and Italian bonds fell sharply after the bank's move.
The yield on Spanish 10-year bonds - an indication of the risk associated with lending Spain money - fell from more than 6% to about 5.2%. Yields on Italian bonds fell by a similar amount.
"Thanks to the ECB's intervention, [yields have] collapsed dramatically. I can't remember the last time I saw such a big move down," said Louise Cooper at BGC Partners.
Stock market investors appeared to be less enthusiastic about the ECB's bond purchases, as they continue to worry about the US economy following Friday's downgrade of US debt by ratings agency Standard and poor.
In London and Paris the FTSE 100 and Cac 40 indexes lost almost 2%, while Frankfurt's Dax was down almost 3%.
Earlier, Asian shares had fallen due to that downgrade of US debt.
Japan's Nikkei and Hong Kong's Hang Seng indexes lost 2.2%, while South Korea's Kospi dropped 3.8%.
Last week saw trillions of dollars wiped from the value of global markets, with the Dax losing about 13% of its value, the FTSE 100 dropping 10% and the Dow ending the week 5.8% lower.More wobbles?
On Sunday, the ECB indicated that it would start buying the bonds of eurozone governments, hoping to instil confidence that some of its biggest economies would not default on their debt obligations.
Bonds are essentially IOUs issued by governments, or companies, to raise cash. Governments issue new bonds to help pay maturing bonds, which is why it is so important that investors continue to buy them - if they do not, governments are unable to pay their outstanding debts.
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In a separate statement, the G7 group of developed countries said members were "determined to react in a co-ordinated manner" to preserve financial stability.
Analysts were mixed in their reaction to the ECB's move, and said the markets would be hoping to see more action from European policymakers.
"The markets are looking for a concrete plan out of Europe and the US in terms of how they are going to deal with their deficits and those plans need to be implemented," said Richard Hunter at broker Hargreaves Lansdown.
"Until the market can get comfort on these matters, there is going to be more volatility."
The intervention by the ECB is seen as a short-term measure to help calm stock markets, but what investors want to see most of all is highly-indebted countries reducing their levels of debt, by spending less and raising more in revenues.
On Friday, Italian Prime Minister Silvio Berlusconi announced plans to balance the country's budget by 2013, a year earlier than planned, while Spain has also promised to speed up cost-saving measures.Knock-on effects
Many will see the ECB as taking a serious credit risk in bailing out two financially over-stretched governments and as behaving contrary to the rules of prudent central banking”
S&P's downgrade of US debt has also underminded investors' confidence.
"The ratings downgrade has been an unprecedented event," said Alvin Liew of UOB Bank in Singapore.
Standard & Poor's cut the US's top-notch AAA rating for the first time, citing concerns about the size of the country's budget deficit and the acrimonious and protracted battle in Congress to raise the country's debt ceiling at the eleventh hour. It has graded the US at AA+.
The fear for many investors is that the US economy will slow further, and even enter a double-dip recession.
This in turn would hurt Asia, which relies on the US, the world's biggest economy, to buy billions of dollars of exports every month.
It would also hamper efforts of governments to reduce their debt load, as it would cut tax revenues.
BBBC correspondents assess the financial markets
The downgrade was heavily criticised by the US administration, with Treasury Secretary Timothy Geithner telling NBC news S&P had shown "terrible judgement" and a "stunning lack of knowledge about basic US fiscal budget maths".
But China, which is the world's biggest investor in US debt, has told Washington to address its high levels of debt rather than blaming S&P.
An editorial in Monday's China People's Daily newspaper, the mouthpiece of the Chinese Communist Party, called on the US not to "become blind to the great risks that a weak greenback could pose to the world's fragile economic recovery by lifting dollar-denominated commodities prices".
"It is time for the US to tighten its belt and solve its structural problems, in order to resume its reputation and restore world confidence," the paper said.Gold standard
Fears of renewed global slowdown were reflected in the price of gold and oil.
Gold, which is seen as a safe investment in times of economic uncertainty, jumped to a new record high of $1,706 an ounce on increased demand.
Meanwhile the price of oil slipped further, reflecting concerns that weak global growth could lead to a fall in demand. US light crude fell 3.3% to $83.59 a barrel, while Brent crude lost 3.4% to $105.96.
"There are few places you can obviously hide," said Greg Gibbs of RBS in Sydney. "And the ones that you can hide in are doing very well. Gold is the beneficiary because there is no central bank to sell it."
BBC
