Shares declined on both sides of the Atlantic as Greece's continuing political uncertainty undermines confidence.
Greece is struggling to form a coalition government, with the threat of new elections looming, as eurozone leaders met in Brussels.
"Greece outside the eurozone was not a subject of debate," said Luxembourg Prime Minister Jean-Claude Juncker.
Bank shares have been worst hit, particularly in Spain and France.
The US benchmark Dow Jones index closed down 1%.
London's FTSE 100 share index and Germany's Dax fell 2%. The euro also fell, down 1% against the British pound.
The undermining factor is again the future of the eurozone.
Eurozone finance ministers earlier met in Brussels to discuss the situation in Greece and Spain.
Mr Juncker, also head of the 17-nation Eurogroup, said there was an "unshakeable desire to keep Greece within the eurozone".
"We will do everything possible to achieve that."
Greece's lack of a government puts in doubt its ability to stick to austerity measures imposed as part of its financial bailout. Without holding to agreed cuts it will not get the rest of the support funds it needs to function.
Adding to the lack of clarity is the fact that anti-bailout parties did well in Greece's elections.
Anti-austerity feeling may be growing in Germany, too, after Chancellor Angela Merkel's party suffered a defeat on Sunday in an election in North Rhine-Westphalia, the country's most populous state.
French banks were among the biggest fallers as investors worried about their exposure to other troubled eurozone countries.
Losses worsened throughout the session leaving BNP Paribas down 3.6%, Societe Generale down 4.1% and Credit Agricole down 5.5%.
Spain's Banco Santander was also down almost 5% while part-nationalised Bankia lost almost 9%.
They said they would set aside an extra 2.7bn euros (£2.16bn) and 2.1bn euros respectively to meet new government requirements aimed at cleaning up the country's ailing property market.
Meanwhile, both Spain and Italy carried out successful bond auctions on Monday.