Italian bank shares slumped Monday as risks linked to a crucial weekend referendum cast a shadow over markets across Europe, while US stocks pulled back from record levels.
Shares in Italy's leading lender UniCredit tumbled 5.7 percent, while those in the second-largest bank Intesa Sanpalo fell 4.2 percent.
The poor sentiment spilled to the rest of Europe, with shares in Royal Bank of Scotland falling 3 percent, Deutsche Bank 2.4 percent and Societe Generale 2.1 percent.
Tensions between Italian Prime Minister Matteo Renzi and the EU have reached a boiling point ahead of Sunday's referendum on constitutional reform. Renzi has suggested he would step down if voters reject the proposal.
"Sunday's referendum on constitutional reform is Italy's Brexit moment and a 'No' vote would send tremendous shockwaves through the markets and the banking system," said Neil Wilson, senior market analyst at ETX Capital
"It could also heap pressure on the euro. Already crushed post-Trump, the euro could hit parity with the dollar if Renzi loses as Italy's place in the eurozone could be doubt," Wilson predicted.
Deutsche Bank suggested markets have not fully priced in a "No" outcome.
"In the case of a 'No' victory we continue to believe that PM Renzi will resign," Deutsche Bank said in a research note. "Markets could react negatively, with the risk of particular stress on the Italian banking sector."
Frankfurt fell 1.1 percent, while Paris lost 0.9 percent and London 0.6 percent.
Major US indices retreated from records, with the S&P 500 falling 0.5 percent. US stocks have been on a tear since Donald Trump's November 8 election victory, which has sparked hopes of a wave of pro-growth policies from Washington.
"This is basically profit taking," said Peter Cardillo, chief market economist at First Standard Financial. "We've been high for a lot of days, so I think it is just a little a bit of a pause."
Leading US retailers declined on worries about the holiday shopping season, while banking shares pulled back in profit-taking.
- OPEC decision -
Focus also was on the oil market ahead of a key OPEC meeting Wednesday to decide whether members can strike a deal to limit output.
Oil prices rebounded Monday after Iraq's oil minister expressed optimism about a deal. That helped counter headlines over the weekend, when Saudi Arabia suggested recovering demand would help stabilize prices next year, even without OPEC intervention.
"Expect to see further choppiness until at least Wednesday, unless OPEC's next move becomes clear one way or another before the actual meeting," said market analyst Fawad Razaqzada at Forex.com.
- Key figures around 2200 GMT -
New York - Dow: DOWN 0.3 percent at 19,097.90 (close)
New York - S&P 500: DOWN 0.5 percent to 2,201.72 (close)
New York - Nasdaq: DOWN 0.6 percent to 5,368.81 (close)
London - FTSE 100: DOWN 0.6 percent at 6,799.47 (close)
Frankfurt - DAX 30: DOWN 1.1 percent at 10,582.67 (close)
Paris - CAC 40: DOWN 0.9 percent at 4,510.39 (close)
EURO STOXX 50: DOWN 1.1 percent at 3,014.58
Tokyo - Nikkei 225: DOWN 0.1 percent at 18,356.89 (close)
Hong Kong - Hang Seng: UP 0.5 percent at 22,830.57 (close)
Shanghai - Composite: UP 0.5 percent at 3,277.00 (close)
Euro/dollar: UP at $1.0615 from $1.0595 Friday
Dollar/yen: DOWN at 111.94 yen from 113.15 yen
Pound/dollar: DOWN at $1.2414 from $1.2478
Oil - West Texas Intermediate: UP $1.02 at $47.08 a barrel
Oil - Brent North Sea: UP $1.00 at $48.24 a barrel