The euro and stock markets fell, and borrowing costs of indebted countries rose, as worries over debt crises in the eurozone and US mounted.
A financial healthcheck on 90 European banks, published last Friday, failed to ease nervous markets.
The euro touched a record low against the Swiss franc, and bond yields in Spain and Italy hit new highs.
Financial shares fell sharply, with Royal Bank of Scotland and Societe Generale down about 5%.
The FTSE 100 and Germany's Dax were down 1%, while France's Cac 40 shed 1.7%.
Wall Street opened lower, with the Dow Jones, S&P 500 and Nasdaq indexes about 1% down.
Meanwhile, the price of gold topped $1,600 an ounce for the first time as investors put money into the haven commodity. The spot gold price hit $1,600.40, before pulling back slightly to $1,598.76.
On Friday, eight European banks failed a stress test on their finances, while another 16 were said to be near the danger zone.
The European Banking Authority published the results of the tests after European stock markets had closed.
The results of the stress tests failed to ease markets' worries because they did not take into account the impact of any country defaulting.
"On the face of it, the tests highlight that the European banking sector is in better health than expected, although crucially investor concern will remain over the credibility of the tests given that the tests did not include an assessment of the impact of sovereign defaults," said Lee Hardman, an analyst at the Bank of Tokyo.'Pull together'
Eurozone leaders are due to attend a summit on Thursday to try to put together a second bail-out package for debt-laden Greece.Continue reading the main story
On Sunday German Chancellor Angela Merkel described the summit as "urgently necessary" and warned that she would not attend unless a deal was assured.
She wants clear commitments from private investors, such as banks, that they would contribute to the bail-out, expected to be worth about 115bn euros ($160bn; £100bn).
This puts her at odds with the European Central Bank (ECB), however. If bondholders were to bear some of the burden of helping debt-ridden countries, this could be seen by the bank and credit ratings agencies as a sort of default.
ECB President Jean-Claude Trichet repeated on Monday that it would not accept Greek bonds as collateral for loans if the country defaults on its debts.
"If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral," he told the Financial Times Deutschland.
That could worsen the crisis facing Greece and its banks, cutting off a vital source of funding.
Mr Trichet called on governments to speak with one voice, saying they could overcome the debt crisis if they worked together.
He said: "It is a question of will and determination. The countries of Europe have always demonstrated that they pull together when the challenges are very high."
A spokesman for Chancellor Merkel said on Monday that she was confident a deal could be done later in the week.
"The government is working on all levels with all its strength on preparing for Thursday a good result, a decent result, a result that sends out a strong and clear signal to the markets," her spokesman, Steffen Seibert said.
BBC
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