European shares fell to a four-month low as Greece's political deadlock and signs of an economic slowdown in China hit riskier assets, and traders and investors said they would avoid European equities as they felt markets could tumble further.
The pan-European FTSEurofirst 300 index fell as much as 2.1% to an intraday low of 1,001.47 points - just off a 2012 low of 1,001.30 points reached on January 2.
The index was down 1.9% at 1,022.69 points by 1020 GMT.
France's CAC-40 index fell by 2.4%, Germany's DAX gave up gains made in previous sessions to decline by 2.2% while Britain's FTSE 100 index fell 1.8% and dropped below a key 5,500 points technical barrier.
JO Hambro Investment Management fund manager Will Kenney said he would remain underweight on continental European equities, preferring American equities or UK companies with relatively little earnings exposure to the troubled euro zone.
"It's much more difficult for us to find good companies in Europe that we want to invest in, than the US or UK," said Kenney, whose firm manages around $1.9 billion in global equities.
EURO ZONE OUTPUT FALLS
A deadlock on forming a new Greek government has increased the chances it will be unable to meet the conditions of its EU/IMF bailout and could exit the euro, while investors have sold off Spanish equities due to worries over Spain's banks.
China's decision on Saturday to cut the amount of cash banks must hold as reserves, normally been seen as a pro-growth move, also added to fears of a worsening global economic outlook.
The euro zone's economic crisis was highlighted by data on Monday which showed that output at factories in the economic bloc had unexpectedly fallen in March.
Credit default swaps on key European economies also rose, underlying fears over the region, with Spanish 5-year credit default swaps reaching a record high of 540 basis points, according to data from Markit.
Spain's benchmark IBEX index fell around 3%, while the Athens index fell 4.2%, down to its lowest level since late 1992 when a crisis in the European Exchange Rate Mechanism - known as ERM and a precursor to the creation of the euro currency - hit world markets.
JP Morgan said in a strategy note that it would maintain its cautious stance on equities, warning investors that buying shares on the back of recent declines could leave them nursing new losses since markets could have further to fall.
"Event risk and political uncertainty in euro zone appear too high to be ignored. Buying the dips might be tempting, but in the event of a country leaving EMU (European Monetary Union), markets would care about only one question: who is next?" it said.
