Stocks, euro tumble on Greek default fears

World stocks fell sharply on Monday, snapping a four-day advance, while the euro shed more than 1% as investors feared a possible Greek debt default and the fallout on the entire euro zone.
European officials ended a weekend meeting without agreeing on new ways to tackle the debt crisis. International lenders told Greece on Monday that it must shrink its public sector and improve tax collection to secure a vital 8 billion euro rescue payment next month.
Concerns are growing that the crisis is worsening again after Greece's prime minister cancelled a U.S. trip to chair an emergency cabinet meeting at home and German Chancellor Angela Merkel suffered a regional election loss.
"The market is bracing itself for the worst possible outcome, which is a disorderly Greek default," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.
Focus is now shifting to a conference call between Greece and its international lenders at 12 p.m. (1600 GMT) to see how Greece plans to make up its budget shortfall and avoid a disorderly default.
World stocks as measured by the MSCI world equity index fell 2.5% on the day, after posting its biggest weekly gain since early July last week.
U.S. stocks opened sharply lower. The Dow Jones industrial average was down 226.67 points, or 1.97%, at 11,282.42.
The Standard & Poor's 500 Index was down 25.07 points, or 2.06%, at 1,190.94. The Nasdaq Composite Index was down 50.84 points, or 1.94%, at 2,571.47.
European stocks lost 2.6%, led by sharp losses in the banking sector, while emerging stocks dropped 3.1%.
With the gloom so widespread, investors took little comfort from expectations that the Federal Reserve would introduce new measures to stimulate the U.S. economy later this week.
"It's no more a link between markets and economics, but a link between markets and politics. The politicians should have seen the crisis coming and done more, but the problem is they are not proactive," said Koen De Leus, strategist at KBC Securities, in Brussels.
"We are just going from one crisis to another. It's a nightmare for the markets."
The euro shed 1.4% to $1.3599 and traders braced for a move to last week's seven-month low of $1.3495.
Oil fell more than $2 per barrel on concerns Europe's debt crisis would hit commodity demand.
Brent crude fell $2.61 to $109.61 a barrel. U.S. crude slipped $2.34 to a low of $85.62.
Spot gold was last trading around 1804.90 a troy ounce, after earlier rising as high as $1,827.36.
Finance ministers of the BRIC emerging economies — Brazil, Russia, India and China — meet later this week to discuss steps to offer support to the euro zone.
Market sentiment may change if they buy euro-denominated bonds, as suggested in preliminary talks, after the European Central Bank's 70 bln euro bond-buying spree over the last five weeks or so failed to stop the crisis from spreading to Spain and Italy.
Investors will also be watching U.S. President Barack Obama as he lays out a deficit-reduction plan on Monday aimed at covering the cost of his recent jobs bill.
The benchmark 10-year U.S. Treasury note was up 28/32, with the yield at 1.9575%.