Wall Street losses prompted a broad sell-off in Asian markets

The UK's FTSE 100 index ended 1.1% lower at 6,459 while Germany's Dax lost 1.2%, and France's Cac shed 1.4%.

However on Wall Street, shares reversed earlier losses to close ahead - clawing back a little of Friday's heavy falls.

Investors fear that uncertainty over the level of some companies' exposure to credit woes is denting the US economy and firms' profits.

There are also concerns that that the full effects of the US housing slowdown have not yet been seen, analysts say.

Caterpillar warning

The Dow Jones, the main US share index, fell 367 points on Friday, the 20th anniversary of the Black Monday stock market crash.

But it ended 45 points, 0.3% ahead, at 13,567 while the tech-heavy Nasdaq index closed was 1.1% ahead.

Earlier, Tokyo's Nikkei index closed 2.2% lower as markets across Asia suffered fresh jitters.

Our economy is slowing down, and I don't think we're going to be able to make it all up in profits overseas

Victor Pugliese, a trader with First Albany

Q&A: What's troubling the markets?

Last Friday's slump started when the building equipment firm Caterpillar cut its profit forecast, blaming the state of the economy.

Caterpillar added that the US economy would be "near to, or even in, recession" next year.

'Sentiment driven'

"Our economy is slowing down, and I don't think we're going to be able to make it all up (in profits) overseas. So I think we have a little bit more downside," said Victor Pugliese, a trader with First Albany in San Francisco.

"You would think you'd have some follow-through from Friday, and that we still have a way to go down."

On Black Monday in 1987, the Dow Jones fell 23%, which nowadays would mean a drop of more than 3,000 points.

The fall on the FTSE 100 comes after it had recovered from the panic that gripped markets in August in the wake of the global credit squeeze.

Last month the US Federal Reserve slashed interest rates from 5.25% to 4.75%, making borrowing cheaper, in a bid to encourage more consumer spending and corporate activity.

And some believe that policy makers will reduce rates again when they meet next week.