Asian and European stocks markets plunged and the yen surged to a two-year high against the euro on Monday as investors doubted a scattered European response to the global financial crisis.

European shares also plunged 4 percent in early trade and the Asian stocks dropped by around 5 percent, led by exporters.

At 0713 GMT, the FTSEurofirst 300 index of top European shares fell 4.2 percent to 1,044.16 points. The benchmark index lost 1.4 percent last week and is down more than 30 percent so far this year.

Banks took the most points off the index, with BNP Paribas down 4.2 percent, Credit Agricole falling 6 percent, Dexia slipping 12.8 percent and Societe Generale shedding 6.9 percent. Commerzbank tumbled 15.7 percent on big volumes.

The need for stability drove up US and Japanese government bond prices, especially after a report on Friday showed the US economy in September shed the most jobs in 5-½   years.

JPMorgan and UBS economists have already predicted the world economy will slip into recession next year, using a common definition of annual growth in global gross domestic product at or below 2.5 percent.

Saul Eslake, chief economist with ANZ Bank in Sydney, does not predict a world recession but sees it as a growing risk.

"The fact that a lot of emerging market economies run current account surpluses insulates them to a degree from the consequences of what's going on in the global financial system," he said. "But they have real economy leakages through their exports and that means they have not decoupled and never were."    

Japan's Nikkei share average ended down 4.25 percent, at its lowest close since February 2004. Sectors that derive their revenues mainly from exports, such as electrical equipment, machinery and auto makers, led the index lower.

The MSCI index of Asia-Pacific stocks outside Japan slid 5.35 percent to the lowest since December 2005.

Hong Kong's Hang Seng index was down 3.35 percent, with shares of China Mobile, China Construction Bank and HSBC paving the way lower.

"There's just nothing positive out there. Figures are bad in the States, Europe's bad, Japan's bad and China's probably slowing," said David Spry, research manager at broker FW Holst in Melbourne.

South Korea's KOSPI was down 4.3 percent, led by shares of Samsung Electronics Co Ltd and POSCO, the world's fourth-largest steelmaker.

Korea's markets have been one of the hardest hit by a wholesale move by foreign investors away from perceived risk in Asia. The country's growing current account deficit has turned off investors, and news that local banks were having trouble securing foreign-currency loans added to negative sentiment on the region's fourth-largest economy.

Korea had $198 million in net equity capital outflows last week, relatively light compared with prior weeks, while Taiwan-related funds, a former hotspot for investors, saw its 17th consecutive week of outflows, according to Nomura.

China is the only mutual fund market in Asia that had two straight quarters of net inflows from funds, with $3.9 billion in new money in the third quarter, the firm said.

The euro was down 3 percent at 140.48 yen after earlier dipping to a 2-1/2-year low below 140 yen. Against the yen, the dollar dropped 2 percent to 103.19 yen after dropping below 103 yen to a near five-month low.

The euro fell 1.1 percent to $1.3617 and earlier fell as low as $1.3595.

The Australian dollar fell sharply on expectations the Reserve Bank of Australia will have to cut interest rates aggressively later this week when it meets to bolster its economy. The Australian currency was down 3.2 percent against the US dollar and the yen. - Reuters