Shares tumbled on Monday despite efforts by global policymakers to stem a collapse in investor confidence after S&P downgraded the US credit rating, but the euro firmed on hopes the ECB will act to stop Europe's debt crisis from engulfing Italy and Spain.

Major Asian equity markets fell by 2-5 percent, while S&P 500 futures shed 2.8 percent, indicating no respite for Wall Street.

European stock index futures fell around 2 percent before paring some losses. London stock market slid 1.15 per cent at open.

"The notion of risk-free investment has been shattered. All the big asset managers and insurers will have to rebalance their portfolios," said David Thebault, head of quantitative sales trading at Paris-based Global Equities. 

Fears that the world's largest economy may be sliding back into recession, worries about a downgrade of America's prized  AAA rating and Europe's debt woes combined to pummel financial markets last week in one of the worst routs since the dark days following the collapse of Lehman Brothers in 2008.

World stocks turned negative for the year on August 1, as weak manufacturing data from the United States, Europe and even China had economists hurriedly downgrading their growth estimates. Equity markets have fallen more than 8 percent further since then.

Ratings agency Standard & Poor's cut the US long-term rating by one notch from AAA on Friday, capping a week that saw $2.5 trillion wiped off companies' values amid worries the US economy was stalling.     

Investors sought shelter in assets traditionally viewed as safe havens in times of financial turmoil, driving the Swiss franc to a record against the dollar and pushing gold to a new  high above $1,714 an ounce.      
"There are few places you can obviously hide ... and the ones that you can hide in are doing very well. Gold is the beneficiary because there is no central bank to sell it," said Greg Gibbs, strategist at RBS in Sydney.

Finance chiefs from the G7 group of major industrial powers pledged to take whatever action was needed to stabilise markets that have been losing faith in political leaders' ability to tackle the twin debt crises in Europe and the United States.

Despite the G7 statement, equity markets continued to slide on Monday, following on from last week when the MSCI All-Country World Index saw its biggest weekly price fall since early October 2008, according to Thomson Reuters Datastream.     

Tokyo's Nikkei closed down 2.2 percent and MSCI's broadest index of Asia Pacific shares outside Japan  fell 4.2 percent, taking its losses for the month so far to more than 12 percent.

Hong Kong's Hang Seng fell around 4 percent  and Singapore's Straits Times Index lost nearly 5 percent . South Korea's KOSPI tumbled as much as 7.3 percent, prompting the stock exchange operator to briefly suspend programme trading, before closing down 3.8 percent .     

Traders said attention was turning to the Federal Reserve's next policy-setting meeting on Tuesday, which may signal renewed efforts to support the beleaguered US economy.

"Selling is not done yet," said Toshio Sumitani, a senior strategist at Tokai Tokyo. "Investors are focusing on whether the Fed may hint at easing such as quantitative easing."     

The dollar remained under pressure, touching a record low versus the Swiss franc below 0.7500 before pulling back to around 0.7545. Against a basket of major currencies, the dollar was down 0.4 percent.

But late maturity US Treasuries were higher despite the downgrade, with the 10-year note up 13/32 to yield 2.52 percent , off the 10-month low of 2.34 percent hit on Friday but well below the high for the year of 3.77 percent. 

"It's strange that whenever there's a crisis, the money goes back to the United States, it doesn't make much sense, but that's how money managers operate," said Francis Cheung, managing director of China-Hong Kong strategy at CLSA.     

The euro briefly climbed as high as $1.4432, up more than a cent from late New York levels on Friday and a long way from last week's lows around $1.4055, and was later trading around $1.4320. - Reuters