European shares steadied on Monday amid rumours of an orderly Greek default at the start of a critical week for the eurozone, after weekend G20 talks and promises of crisis action.
But Asian markets tumbled and the euro was further pressured by uncertainty over the debt crisis in the eurozone, and risks it could further damage the global economy already showing signs of slowdown.
In European morning deals, the London stock market sank 0.87 percent and Paris dropped 0.39 percent, while Frankfurt rose 0.68 percent. All three markets had fallen sharply in earlier trading but then clawed back some losses.
The week got off to a poor start with investors unimpressed by a commitment at the weekend from G20 finance chiefs that they would take strong, coordinated action to avoid another global financial crisis.
"In spite of talk at the weekend that EU leaders are looking at expanding the size of the current (EU) bail-out fund to 3.0 trillion euros, markets are likely to remain cautious, even if it appears that European leaders do appear to be finally grasping the fact that the current situation cannot go on forever," said CMC Markets analyst Michael Hewson.
"The plan being talked about in addition to the 3.0 trillion euros is said to also include a recapitalisation of Europe's banks and a plan for an orderly Greek default."
Traders remain concerned that the global economy is teetering on the brink of another fierce recession, sparked partly by the eurozone debt drama.
Greece faces a tough week as European Union and IMF experts resume an audit of progress on cutting the public deficit and reforming the economy.
The EU and IMF will decide on the basis of the audit whether to release the next slice of rescue funds of 8.0 billion euros ($11.0 billion) from a first bailout in May last year.
Without this money, Greece will be unable to pay its current bills from about the middle of October.
Markets are also in suspense before Thursday's vote in the German parliament on whether to allow an expansion in the scope and size of Europe's huge bail-out fund, a proposal mooted since a July 21 summit.
A massive expansion of the European Financial Stability Facility, along with greater interventionism from the European Central Bank, might allow EU leaders to "ring-fence" Greek, Irish and Portuguese debt.
This in turn would prevent the crisis spreading to the much larger Spanish and Italian economies, where any default could trigger the collapse of French banks and threaten the survival of the eurozone.
Rumours that plans are being made for an inevitable Greek debt default caused further volatility on Monday.
Economist Lee Hardman, at The Bank of Tokyo-Mitsubishi UFJ in London, said the G20 gathering in Washington had failed to dispel market uncertainty that had sparked last week's hefty losses.
"The G20 meeting over the weekend has failed to provide further clarity over resolving the eurozone debt crisis and may even have served to increase uncertainty further," he said.
"A timely and effective plan which attempts to get a grip on the escalating eurozone sovereign debt crisis is required which would help reassure investors that the escalating crisis is not spiralling out of control."
In Asian deals, Tokyo fell 2.17 percent, Seoul shed 2.64 percent and Sydney ended 1.01 percent lower. Meanwhile, in afternoon deals, Hong Kong fell 2.97 percent and Shanghai lost 1.54 percent.