Soaring oil prices on Monday hit hard at stock markets that were already shaky over prospects for inflation and global growth, while expectations for higher U.S. interest rates boosted the dollar.
Yields on European government bonds fell after a see-saw session last Friday prompted by contradictory U.S. economic data and as the European Commission on Monday cut its 2005 growth forecast for the euro zone to 1.6 percent from 2.1 percent.
Wall Street look set to open lower.
Oil was the day's main attention grabber, setting new records as investors bet on a continued tight market.
"There's just a lot of concern around as to how high crude will go and also how this will impact the global economy," said Geoff Langham, head of trading at CMC Group in London.
London Brent was up $1 a barrel at 57.51 having touched $57.65. New York crude oil rose 87 cents to $58.14, having hit $58.18. Both peaks were the highest level recorded for crude oil futures trade.
Higher oil prices, primarily driven by huge demand from China and other booming economies, are seen as a threat to continued global economic growth, corporate profits and a boost to inflationary pressures. Monday's records weighed on stocks. The FTSEurofirst 300 index was more than 0.8 percent down while the DJ Eurostoxx 50 index lost around 1 percent.
Earlier, Tokyo's Nikkei average fell 0.48 percent to 11,667.54.
Investors were already concerned about the state of the world-driving U.S. economy. Non-farm payroll data last Friday showed meagre jobs creation but key manufacturing figures were strong.
Expectations have also been rising that inflationary pressures will prompt the U.S. Federal Reserve to raise rates more aggressively than initially projected.
"The uncertainty will linger for a while," American Express Bank said in a note.