European and Asian stock markets tumbled Monday as investors reacted nervously to a steep decline on Wall Street last Friday after disappointing economic and corporate news rekindled worries about a United States recession.

The United Kingdom's benchmark FTSE 100 fell 1.3 per cent to 5,808.1, while Germany's DAX Index declined 1.5 per cent to 6,652.08.

France's CAC 40 slipped 1.5 per cent to 4,717.57.

US stock index futures also were down, suggesting Wall Street was poised for another drop Monday.

Disappointing report

Stocks fluctuated as investors digested a manufacturing report that was weak but not as bad as many on Wall Street had feared, and also absorbed another a disappointing construction sector report.

The Institute for Supply Management's index of US manufacturing activity came in at 48.3 - stronger than the 48.1 the market expected, according to Thomson Financial/IFR.

However, the Commerce Department reported that construction spending in January fell by the steepest amount in 14 years.

"We had a lower opening and then the market turned mixed. The two economic numbers that came out today were still rather on the negative side and they point to further weakness in economic activity," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

In early afternoon trading, the Dow Jones industrial average fell 36.23, or 0.30 per cent, to 12,230.16.

Broader stock indicators were mixed.

The Standard & Poor's 500 index rose 0.45, or 0.03 per cent, to 1,331.08, and the Nasdaq composite index fell 6.08, or 0.27 per cent, to 2,265.40.

In Asia, Japan's benchmark Nikkei 225 index plunged 4.5 per cent to close at 12,992.18.

Markets in Hong Kong, South Korea, India and Australia also fell sharply, but shares in mainland China advanced.

Investors dumped stocks after a series of depressing economic and earnings reports last Friday out of the United States - a vital export market and the world's largest economy - sent the Dow Jones industrial average down 315.79, or 2.51 per cent, to 12,266.39 Friday.

The bad news included poor quarterly results from American International Group Inc and Dell Inc and weaker-than-expected results on the Chicago purchasing managers index, which painted a dreary picture of the manufacturing sector.

"It's all due to fears of a recession in the US," said CommSec chief equities economist Craig James in Sydney, Australia. "This is a global market sell-off."

The dollar's drop to a three-year low against the yen also weighed on sentiment in Tokyo as dollar weakness erodes overseas earnings at Japan's key exporters.

The dollar fell as low as 102.59 yen before recovering some to 103.10 yen, down from 103.96 yen late Friday in New York.

Modest recovery

Asian markets, which have fallen much of the year so far, had staged a modest recovery through the middle of last week, with Tokyo's Nikkei climbing to a seven-week high last Wednesday.

But pessimism returned yesterday, sending Hong Kong's Hang Seng index down 3.1 per cent to close at 23,584.97. India's benchmark Sensex tumbled 5.3 per cent to a provisional close of 16,639.54.

US economic growth slowed to a 0.6 per cent pace in the fourth quarter and some analysts believe the economy is already shrinking.

"The biggest economy in the world is mired in recession and everybody suffers," said Francis Lun, a general manager at Fulbright Securities in Hong Kong, summing up regional feelings.

Testifying before Congress last week, Federal Reserve Chairman Ben Bernanke signalled that the central bank sees weak growth as the main threat and is prepared to further cut interest rates.

In other markets in the region, the Korea Composite Stock Price Index fell 2.3 per cent to 1,671.73, while Australia's benchmark S&P/ASX200 index slid 3.0 per cent to 5,405.8.

Markets in China, however, defied the trend.

The benchmark Shanghai Composite Index rose 2.1 per cent to close at 4,438.27, on expectations for possible market-boosting measures from the national legislative session, beginning this week.

- AP