Britain's benchmark stock index, the FTSE 100, lost 220.11 to 4,760.14 - a 4.42 percent fall. The declines were led by the banking industry, with the mining and oil industries also suffering drops. HBOS PLC's share price dropped 15.7 percent, while the Royal Bank of Scotland Group PLC fell 13.6 percent.
Germany's DAX index fell 4.22 percent to 5,552.27. France's CAC-40 index dropped 4.85 percent to 3,882.81. In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.
Over the weekend, many European governments moved to save troubled banks, and made more promises to protect depositors from the credit crisis.
Germany on Sunday agreed a 50 billion euros (US$68 billion) package to bail out Hypo Real Estate, the country's second-biggest commercial property lender, after a rescue plan by private lenders fell apart.
France's BNP Paribas SA committed to taking a 75-percent stake in troubled European bank Fortis N, and Sweden and Denmark followed Ireland and Britain in raising the amount of savers' deposits guaranteed by the government.
Britain's treasury chief Alistair Darling said he was "ready to do whatever it takes" to get the country through the credit crunch, and was looking at a "range of proposals."
But analysts said that, like the U.S. plan, the lack of detail in many of Europe's moves failed to restore investors' confidence, resulting in the stock market tumbles. "What the markets need are some more details about exactly when and how these plans are going to come in," said Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers, "And they need some proof that some of these measures are taking hold."
Across Asia, all markets were also in the red. Tokyo's Nikkei 225 index fell to its lowest level in 4 1/2 years, sinking 4.25 percent to 10,473.09.
Hong Kong's Hang Seng index slid 5 percent to 16,803.76. Markets in mainland China, Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 percent, it's biggest one-day drop ever.
In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.
"Everyone is losing confidence," said Mark Tan, who helps manage about $20 billion of equities and bonds at UOB Asset Management in Singapore. "The problem now is that the lack of foreign confidence could affect the Asian consumer, which would lead to a bigger slowdown in Asia than expected."
"This credit crunch looks like it's not going away any time soon," said Alex Tang, head of research at brokerage Core Pacific-Yamaichi in Hong Kong. "Apart from a credit crunch in Europe, investors are quite concerned about the worsening outlook on the U.S. economy."
Investors appeared spooked by a series of developments out of Europe over the weekend.
Belgian Prime Minister Yves Leterme said Sunday that France's BNP Paribas SA had committed to taking a 75-percent stake in troubled European bank Fortis NV. British treasury chief Alistair Darling also said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch.
The outlook for the U.S. economy darkened after figures released Friday showed that 159,000 jobs in the U.S. were lost last month, the fastest pace in more than five years.
Such concerns overshadowed any investor optimism over the U.S. House of Representatives' approval Friday of a massive bailout plan that will allow the U.S. government to buy distressed mortgages and securities backed by mortgages from banks and other financial institutions.
Investors questioned how long it would take for the package to unfreeze credit markets, restore bank lending and generally shore up the U.S. economy.
"The market had already figured in the package's passage," said Yukio Takahashi at Shinko Securities Co. in Tokyo. "There are strong doubts about its implementation."
Japanese financial companies and industries dependent on exports, such as steel, were especially hard hit Monday. Nippon Steel Corp. stock tumbled 9.8 percent, while Mizuho Financial Group was down 8.3 percent in morning trading.
Trading in mainland China resumed after a weeklong holiday break with the benchmark Shanghai Composite Index sinking 5.2 percent to 2,173 by midafternoon.
Banks and other financial shares saw heavy declines. Shanghai Pudong Development Bank fell 7 percent and Bank of China slipped 3.6.
Shares of Ping An Insurance Co. rose even after it said Monday it will record a US$2.3 billion loss on its stake in European bank Fortis in the biggest blow yet to a Chinese institution from the global credit crisis. Ping An's shares were up 1.6 percent.
U.S. stock index futures were nearly 2 percent lower, suggesting Wall Street would open lower Monday. The Dow Jones industrial average fell 157.47, or 1.5 percent, to 10,325.38 on Friday.
In currencies, the euro slid to US$1.3570 from US$1.3774 late Friday. But the dollar was weaker against the yen, falling to 103.66 from 105.30 yen late Friday.
Oil prices tumbled on speculation that slower global growth will cut crude demand. Light, sweet crude for November delivery was down US$3.23 to US$90.65 a barrel in Asian electronic trading on the New York Mercantile Exchange.
Associated Press Writers Alex Kennedy in Singapore and Yuri Kageyama in Tokyo contributed to this story.