Stocks on both sides of the Atlantic dropped as concern about Europe's political and financial instability returned, and Wall Street's five-year highs left investors with vertigo in the absence of signs to justify current valuations.
The latest American economic report also disappointed.
Orders to US factories advanced 1.8 per cent in December after a revised 0.3 per cent slide the prior month, according to Commerce Department data. The gain though fell short of estimates of analysts polled by both Bloomberg News and Reuters, which had predicted increases of 2.3 per cent and 2.2 per cent respectively.
That report put a damper on enthusiasm stemming from Friday in the US when a slew of data seemed to point to a strengthening recovery.
In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.90 per cent, while the Standard & Poor's 500 Index shed 0.91 per cent, and the Nasdaq Composite Index declined 1.26 per cent.
Shares of Wal-Mart Stores slid, last 1.6 per cent lower at US$69.37 after earlier falling as low US$69.13, after JPMorgan Chase reduced its rating on the stock.
Shares of Oracle dropped, last 2.4 per cent lower, after the company agreed to buy Acme Packet for about US$2.1 billion. Acme Packet shares soared, climbing 22 per cent.
Shares of Herbalife also sank, last down 3.7 per cent, after The New York Post reported the company is facing an investigation by the Federal Trade Commission.
In Europe, the Stoxx 600 Index ended the day with a 1.5 per cent slide from the previous close. Benchmark stock indexes also dropped in London, Frankfurt and Paris. German stocks were hurt after the nation's second biggest bank, Commerzbank, posted a wider than expected quarterly loss and warned of more trouble ahead.
Spain's IBEX 35 plunged 3.8 per cent amid calls for Prime Minister Mariano Rajoy to resign amid fury over reports of corruption involving the ruling party. Rajoy has denied allegations.
Spanish bonds dropped, sending the nation's 10-year yield up 23 basis points to 5.44 per cent.
"The prospect of Rajoy's resignation has roiled the markets," Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, told Reuters.
"Any fresh political instability in (the) euro zone's most important periphery economy could undermine the sense of investor confidence and send Spanish yields higher, making it much more difficult for the government to implement its austerity measures."
Italy, meanwhile, is plagued by concern about the increasing popularity of Silvio Berlusconi as the nation heads to the polls in three weeks. A potential election victory for the former premier could curb efforts to reform the country's finances.