(AP) Financial markets have been rocked Monday by fears that the U.S. government was heading for a shutdown and renewed political instability in Italy.
Despite a raft of economic news due around the world this week, the focus of attention will likely remain on developments in Washington and Rome.
In the U.S. capital, lawmakers face a deadline of midnight Monday (0400 GMT) for agreeing a compromise budget deal that will avert the first government shutdown since 1996.
Meanwhile in Rome, Premier Enrico Letta faces a confidence vote on Wednesday after ministers from Silvio Berlusconi's center-right bloc pulled out of the government. However, three of the five ministers said they would reluctantly comply, a rare challenge to Berlusconi's longstanding leadership of the Freedom People party.
"If investors had been hoping that common sense would prevail over the weekend, in either Italy or the U.S. for that matter, then they would have ended up sorely disappointed," said Michael Hewson, senior market analyst at CMC Markets. "Given the protagonists involved in events either side of the Atlantic any other outcome, would probably have been wishful thinking and so it has proved."
Given those uncertainties, investors are edgy at the start of a potentially big week on the economic news front, with the data flow scheduled to culminate Friday with the U.S. nonfarm payrolls report for September.
In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 6,458 while Germany's DAX fell 1.1 percent at 8,570. The CAC-40 in France was also 1.1 percent lower at 4,141.
The falls in Europe come on the back of big losses in most of Asia's stock markets. Japan's Nikkei 225 stock average, the region's heavyweight, closed 2.1 lower at 14,455.80. Among others, Hong's Hang Seng index was down 1.3 percent to 22,909 while South Korea's Kospi was trading 0.7 percent lower at 1,074.
How markets actually end up could largely hinge on developments in Washington, with the deadline looming. Recent history suggests that some sort of deal may end up being cobbled together between the Republican-dominated House of Representatives and the Democrats, who control the Senate as well as the White House.
"As we've seen in the past, the months leading up to the deadline are simply seen as an opportunity for both sides to gain political points, while making a villain out of the opposition," said Craig Erlam, market analyst at Alpari. "It's only in the final 24 hours that any actual progress tends to be made. We can only hope that this is what we're seeing again."
The budget battle in the U.S. remains the main focus in other financial markets too.
Among currencies, the euro was 0.2 percent lower at $1.3492 while the dollar fell 0.4 percent to 97.85 yen.
In the oil markets, the price of benchmark New York crude was $1.17 lower at $101.70 a barrel as investors fretted about the impact on the U.S. economy and the consequent impact on energy demand. Ratings agency has said that a shutdown would knock 1.4 percent off the U.S.'s annual gross domestic product.