In Europe, the FTSE 100 index of leading British shares was down 26.05 points, or 0.5 percent, at 5,234.26 while Germany's DAX fell 17 points, or 0.3 percent, to 5,614.37. The CAC-40 in France was 24.31 points, or 0.6 percent, lower at 3,757.54.
Wall Street was poised to give up all of Monday's modest gains when it opens later - Dow futures were down 33 points, or 0.3 percent, at 10,107 while the broader Standard & Poor's 500 futures fell 5.9 points, or 0.5 percent, to 1,086.70.
Sentiment has been depressed all day following reports that China's banks have had their reserve requirements increased again. Following those reports, the benchmark Shanghai Composite Index fell 75.02 points, or 2.4 percent, to 3,019.39, its lowest since late October.
"Talk that China may accelerate the pace of monetary tightening shook the markets," said Jane Foley, research director at Forex.com.
Investors are particularly worried about policy changes in China as the country's growth helped limit the impact of the global recession over the last year - figures last week showed that China's economy grew an eye-catching 10.7 percent in the final three months of the year from the year before.
The worry is that tighter monetary policy in China to check inflationary pressures could kill off the nascent economic recovery around the world.
And the economic data around the world suggests that the recovery is not on a sure footing.
Figures Tuesday showed that Britain finally emerged from recession in the last three months of 2009 - after six consecutive quarters of falling output - but only at a quarterly rate of 0.1 percent as the services sector barely grew. That was way less than the 0.4 percent consensus in the markets.
The weak growth rate hit the pound hard, pushing it down a whole cent following the data's release to $1.6112, even though the figures raised eyebrows in the markets.
"My experience in looking at data like this for nearly 40 years is that if the official GDP data disagrees with both the data from the labour market and the data from business surveys, the GDP data is probably wrong," said Douglas McWilliams, chief executive of the Centre for Economic and Business Research.
"Accurate data will only become available in about two years time," said McWilliams, who reckons growth was more like 0.5 percent.
Meanwhile, equivalent figures in South Korea did little to excite investors - fourth quarter growth there slowed to just 0.2 percent because of weakness in manufacturing, construction and exports.
Further weighing on sentiment was the news that Standard & Poor's is considering lowering its double-A credit rating on Japan as it reduced its outlook to negative from stable.
"The outlook change reflects our view that the Japanese government's diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures," S&P said in a statement.
All these concerns have reinforced fears that the recovery from recession this year will not be as strong as suggested by equity prices following the ten-month bull run.
The key insight into the economic recovery in the U.S. will come Wednesday when the Federal Reserve completes its latest two-day rate-setting meeting. Though the Fed is expected to keep its benchmark interest rate unchanged, investors will be particularly interested to see the accompanying statement, especially if there's continued support for keeping borrowing costs "exceptionally low and for an extended period."
Elsewhere in Asia, Japan's Nikkei 225 stock average retreated 187.41 points, or 1.8 percent, to 10,325.28 and South Korea's Kospi shed 32.86 points, or 2 percent, to 1,637.34.
Hong Kong's Hang Seng sank 489.22 points, or 2.4 percent, to 20,109.33 and Taiwan's index plunged 3.5 percent.
Elsewhere, Singapore's market was down 2.4 percent and Thailand retreated 0.6 percent. Indian and Australian markets were closed for public holidays.
Oil prices fell to near $74 a barrel amid signs of faltering global demand.
Benchmark crude for March delivery was down 83 cents to $74.43 in electronic trading on the New York Mercantile Exchange.
The euro fell 0.5 percent to $1.4084 while the dollar dropped 0.6 percent to 89.72.
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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
