Asian investors were unfazed by North Korea's rocket test
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Shares on Wall Street ended lower after worries about the upcoming corporate earnings season hit prices.
The Dow Jones closed 0.5% lower amid reports that IBM may abandon its takeover of Sun Microsystems.
European markets gave up early gains. After rising more than 1% at first, the UK's FTSE 100 index was down 0.6%, and French and German stocks also fell.
Earlier, shares had extended a recent rally inspired by hopes that the worst might be over for the world economy.
The FTSE 100 index was down 22.27 points at 4,007.4 in afternoon trade.
France's Cac 40 index was down 1.57% to 2,912.3 while Germany's Dax index had fallen 0.76% to 4,351.69.
Bulls emerge?
In Asia on Monday, Hong Kong's Hang Seng index ended up 3.1%, while Japan's Nikkei rose 1.2%.
Investors were hopeful that low interest rates, stimulus plans and banking bail-outs would begin to pull the world economy out of its slump.
The gains in Asia came after US stocks ended higher on Friday, logging a fourth week of consecutive gains, despite gloomy data on the jobs market. Markets were also lifted by news that investors had strongly backed HSBC's rights issue - the biggest in UK corporate history.
Asian markets shrugged off news of a rocket launch by North Korea, focusing instead on economic figures.
Japanese exporters, such as Panasonic, got a boost as the yen weakened and after US Federal Reserve chairman Ben Bernanke said that Fed strategies were easing the US financial crisis.
BBC business editor Robert Peston says that share prices have been rising recently not because there is evidence of economic recovery - but rather on hopes that the pace of deterioration may be decelerating.
He says there is evidence that the availability of credit is improving in the UK , and that the underlying message from recent mixed data on the UK housing market may be that prices are not dropping as quickly as they were.
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The pace of deterioration may have been decelerating
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