World stocks fell to a six-week low on Monday, driven by a 7.5 percent fall in Japanese stocks, while oil tumbled as concerns grew about the economic damage from Japan's earthquake and tsunami.
In emerging markets, construction and refinery shares rose thanks to expectations for large-scale reconstruction efforts in the economy hit by a triple blow of earthquake, tsunami and nuclear emergency -- Japan's biggest crisis since World War Two.
Japanese stocks posted their biggest daily decline since October 2008 in trading which saw record-high trading volume among the Tokyo Stock Exchange's biggest companies. Rolling blackouts started in the greater Tokyo area on Monday, paralysing factories, buildings and households.
"Japan is going to be a focus and it is not going to be a good day... There are not enough positive reasons out there to buy," Matt Brown, trader at Catalyst Markets said.
"There are further worries about aftershocks and tsunamis and the possible costs to businesses. There are fears how these nuclear reactors can cope and any negative news will certainly weigh on the market." The MSCI world equity index fell 0.6 percent to levels last seen in late January. The index has erased almost all gains for the year, standing up 1.1 percent since January.
The Thomson Reuters global stock index fell 0.9 percent.
The FTSEurofirst 300 index also fell 0.9 percent.
The benchmark Nikkei index fell 6.2 percent, having hit a four-month intraday low at one point. The broader TOPIX index closed down 7.5 percent, the largest daily decline since October 2008 in the wake of the Lehman Brothers failure.
In the cash market, a record 4.88 billion shares changed hands on the Tokyo Stock Exchange's first section.
Emerging stocks rose 0.4 percent.
"However, the downside for the overall stock market would be limited. Demand for oil refining, steel and cement issues will rise due to rebuilding after the quake," said Yu Rayming, chief investor officer of Prudential Financial.
U.S. crude oil fell 2.3 percent to $98.83 a barrel as concerns grew about a short-term hit to demand in Japan, the world's third-largest oil consumer.
The Bund futures were steady.
The Japanese government bond yield curve steepened, with super-long debt retreating as market players anticipated the potential fiscal costs of future rebuilding efforts.
The dollar fell 0.1 percent against a basket of major currencies while the yen rose 0.1 percent to 81.81 per dollar.
The euro was up slightly on the day at $1.3927 after European Union policymakers surprised markets over the weekend by reaching some significant agreements ahead of the March 24-25 heads of state meeting.
Essentially, the summit agreed to increase the lending capacity of the European Financial Stability Fund to its full limit of 440 billion euros and also lowered the interest rate charges for EFSF loans.
The cost of insuring Greek debt against default fell by 60 bps to 985 bps, according to data monitor Markit. Other peripheral credit default swaps also fell, with the exception of Irish CDS.