The FTSE 100 and European closed in red in the wake of Wall Street's decline amid fears the Federal Reserve will hike interest rates for longer.
Solid figures from the world’s biggest economy have cooled speculation that policymakers might soften their approach on rates early next year.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Worries that the Fed could unwrap an unwelcome present of another super-sized rate hike when policymakers meet next week are sprinkling Christmas fear on indices. Wall Street registered its worst day in almost a month on Monday after a snapshot from the services industry showed consumer resilience was strong.
"This has fuelled speculation that the US central bank will have to be more Scrooge-like and make borrowing even more expensive to rein in inflation. Companies still appear to be dealing with pent-up demand with the ISM reading showing the services sector is expanding merrily. With central bank policies so far having meagre impact on the jobs market, the chances of a 0.75% rate hike being announced on the 14th are now considered to be higher. The potential effect of another rapid tightening round has led to jitters about repercussions for the global economy."
Meta (META) slid 5.13% and weighed heavily on the S&P 500 and the Nasdaq after a report on a EU ruling that said Facebook and Instagram should not require users to agree to personalised ads based on their digital activity.
Read more: UK in recession until end of 2023, CBI warns
In London, packaging group Mondi (MNDI.L) is one of the biggest FTSE 100 fallers, down 4.72% at 1468 after Credit Suisse cut its rating from outperform to underperform and cut its price target from 1800p to 1600p.
Life insurer Phoenix (PHNX.L) climbed 2.45% after it set an incremental new business long-term cash generation target of around $1.83bn (£1.5bn) by 2025.
Stocks in London also took a hit from the construction manufacturing index for the month of November, which showed a contraction from the previous month.
Meanwhile, Oil prices have taken a tumble as the market weighs the long-term impact of the latest round of restrictions placed on Russia by the European Union and G7 to punish Moscow for the war in Ukraine.
Brent crude (BZ=F) was trading at around $82/barrel.
Craig Erlam, senior market analyst at Oanda, said: "It's been a volatile start to the week in oil markets, continuing in much the same way we ended last, with traders still working through the announcements from the G7 and OPEC+, as well as the latest COVID19 moves from China. In many ways, none of the above improve visibility in the crude oil space; they arguably actually make the outlook more uncertain.
"But the intial response to the above has seemingly been negative for crude prices, with the loosening of Chinese COVID-19 curbs not enough to offset the US$60 price cap and unchanged OPEC+ decision. The cap is probably viewed as a business as usual for now, with Russia reportedly selling below these levels already and improving its ability to get around the sanctions. Which means output remains broadly steady.
Watch: Wall Street closes modestly lower after jobs report