Investors have been particularly spooked by the Sunday election in Greece, which has resulted in a split Parliament where no party looks like it will be able to form a government. The two parties that governed as a coalition for the past six months were pummeled to the benefit of more extreme parties of the right and left. The socialist Pasok party suffered the biggest retreat. Its share of the vote collapsed from around 43 per cent in the last election in 2009 to a little over 13 per cent.
A period of uncertainty looms for the bailed-out country, which is in its fifth year of recession and has over half its youth out of work following big spending cuts and tax increases in return for crucial international bailout funds. If no government can be formed that can command a majority in Parliament, another general election within the next two months seems possible.
"As for the Greek elections, they resulted in complete uncertainty with the possibility of another election taking place in the near future in order to try and put in place a government that can actually have some modicum of control," said Gary Jenkins, managing director of Swordfish Research.
With more than 99 per cent of the vote counted, conservative New Democracy led with 18.9 per cent and 108 of Parliament's 300 seats. Party leader Antonis Samaras, who backs Greece's bailout commitments for austerity, will launch coalition-forming talks later in the day.
Further weighing on sentiment is Sunday's defeat of French President Nicolas Sarkozy to his socialist rival Francois Hollande, who has campaigned on the need for more growth-generating economic policies and less reliance on austerity. Final results from France's presidential election show Hollande narrowly defeated incumbent Nicolas Sarkozy with 51.62 per cent of the vote.
Even German Chancellor Angela Merkel suffered a setback Sunday in a regional election in the northern state of Schleswig-Holstein. Merkel and her government have borne the brunt of the criticism over Europe's austerity drive.
"Election defeats for President Sarkozy, and for the main coalition parties in Greece and for Angela Merkel's party in Schleswig Holstein highlight voter backlash against austerity, economic contraction in unemployment," said Neil MacKinnon, global macro strategist at VTB Capital.
In Europe, Germany's DAX was down 1.4 per cent at 5,468, while the CAC-40 in France fell 1.2 per cent to 3,125. The FTSE 100 of leading British shares was closed for a public holiday.
Greek shares suffered worse, trading 8.2 per cent lower.
In the currency markets, the euro recovered some of its poise after falling to a three-month low against the dollar during Asian trading hours. It was up 0.4 per cent at $1.3018, having earlier fallen to a low of $1.2972.
Wall Street was also poised to open lower with Dow futures and the S&P 500 futures both 0.7 per cent lower.
Earlier in Asia, Japan's Nikkei 225 index plunged 2.8 per cent to close at 9,119.14 — its lowest finish in three months — with the market's export sector also sapped by a rising yen. Hong Kong's Hang Seng slid 2.6 per cent to 20,536.59. In other Asia markets, Australia's S&P/ASX 200 lost 2.2 per cent to 4,301.30 and South Korea's Kospi shed 1.6 per cent to 1,956.44.
Oil prices fell alongside equities, with the benchmark New York rate down 91 cents at $97.58 a barrel.
Pamela Sampson in Bangkok contributed to this report.
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