European shares fell to near six-month lows amid a global selloff in equities on fears of a slowdown in U.S. economic growth, with only a handful of stocks trading in the green.

The pan-European STOXX 600 index was down 2.2% to 487.15 points, its lowest since Feb. 14, by 0827 GMT.

The Euro STOXX volatility index jumped 5.7 points to 30.26, its highest since March 2023.

Fears that the U.S. could be heading towards a recession have sent investors dashing away from risk assets. Japan's Nikkei closed 13% lower.

Germany's DAX, France's CAC 40, Britain's FTSE and Spain's IBEX 35 all fell more than 2%.

NIKKEI'S 1987 DEJA VU

"You don't get the Nikkei falling by its largest amount in nearly 40 years without some kind of repercussions across European markets," Chris Beauchamp, chief market analyst at IG Group said.

"These things don't usually stop on a dime, it takes a few days to sort out... but the initial panic appears to be over."

Japanese stocks collapsed Monday in their biggest single day rout since the 1987 Black Monday sell-offs, driven by last week's plunge in global stock markets, economic concerns and worries investments funded by a cheap yen were being unwound.

The Nikkei share average shed a staggering 12.4% as Friday's dismal U.S. jobs data heightened worries of a possible recession, and as the yen rallied to 7-month highs versus the dollar. This was the index's worst showing in percentage terms since the October 1987 crash.

Japan's banking stocks led the rout, which pushed the Nikkei into bear market territory given its 27% drop from a July 11 peak of 42,426.77.

From July 11 to Monday's close of 31,458.42, Nikkei has wiped out 113 trillion yen ($792 billion) of that peak market value.

"The rapid move in the yen is putting downward pressure on Japanese equities, but it's also driving an unwind of a major carry trade - investors had leveraged up by borrowing in yen to buy other assets, chiefly U.S. tech stocks," said Kyle Rodda, a senior financial market analyst at Capital.com in Melbourne.

"We are basically seeing a mass deleveraging as investors sell assets to fund their losses."

The Nikkei lost 4,451.28 points on Monday, its biggest ever one-day drop in point terms, eclipsing the 3,836.48 points it lost on Oct. 20, 1987 when the Black Monday global stock market crash hit Japanese markets.

Japanese Finance Minister Shunichi Suzuki said the government was monitoring markets with "grave concern."

"It's hard to say what is behind the decline in stocks," Suzuki told reporters.

Most analysts said neither interest rate expectations nor economic data could explain the severity of the sell-off, although it was possibly driven by the rise in the yen whose near-zero short-term yields and steady depreciation had made it the funding currency for billions of dollars worth of investments for years.

The yen was last up 2.5% at 142.96 per dollar, and has risen 14% in less than a month, driven in part by the Bank of Japan's interest rate rise last week and an unwinding of yen-funded carry trades.

"In short, not only the currency but the entire 'value' trade in Japan which had hijacked our market for two years is being unwound," said Richard Kaye, a portfolio manager at Comgest in Tokyo.

NASDAQ FUTURES DOWN 3.98%

U.S. stock index futures tumbled Monday, with those tied to the Nasdaq falling just over 4%, as fears of the United States slipping into a recession rippled through global markets.

All megacap and growth stocks, the main drivers for the indexes hitting record highs earlier this year, fell sharply in premarket trading.

Apple Inc. slumped 7.3% after Berkshire Hathaway slashed its stake in the iPhone maker by almost 50%, suggesting that the billionaire investor is growing wary about the broader U.S. economy or stock market valuations that have gotten too high.

Nvidia fell 6.8% after reports of a delay in the launch of its upcoming artificial-intelligence chips due to design flaws.

At 6:09 a.m. ET, Dow e-minis were down 635 points, or 1.51%, S&P 500 e-minis were down 132 points, or 2.38%, and Nasdaq 100 e-minis were down 747 points, or 4.03%.

The weak jobs report and shrinking manufacturing activity in the world's largest economy, coupled with dismal forecast from the big technology firms, pushed the Nasdaq 100 and Nasdaq Composite into a correction last week.

The weak jobs data also triggered what is known as the "Sahm Rule," seen by many as a historically accurate recession indicator.

The data prompted traders to assign a 91.5% probability that the U.S. central bank will cut the benchmark rates by 50 basis points in the September meeting and see year-end rates at 4-4.25% from the current 5.25%-5.50%, according to CME's FedWatch Tool.

FEAR GAUGE SPIKES

Big Wall Street brokerages also revised their Fed rate projections for 2024 to show greater policy easing by the central bank.

"I am reluctant to believe the Fed would start the easing process with a 50 bps cut, but if the next seven weeks of data are consistent with this week's, the Fed should be aggressive," said Ronald Temple, chief market strategist at Lazard.

A slew of Fed officials will be speaking on the economy and monetary policy through the week and any indication on the interest rate cuts could soothe the frayed nerves of investors.

Chicago Fed President Austan Goolsbee is scheduled for 8:30 a.m. ET and San Francisco Fed President Mary Daly after the bell.</p> <p>Futures tracking small-cap index Rusell 2000 dipped 3.7%.

The CBOE Volatility index, also known as Wall Street's "fear gauge," breached its long-term average level of 20 points last week and was currently at 35.19, highest since May 2022.

Crypto-linked stocks fell after Bitcoin hit its lowest in five months. Coinbase Global was down 9.9%, U.S.-listed shares of Bitfarms fell 10.1%, Microstrategy slid 12.8% and Riot Platforms was down 9.8%.

ENERGY STOCKS

In Europe, energy stocks took the most hit, falling 3.4% after oil prices dropped 1% as U.S. recession fears offset supply worries in Middle East.

Financial shares were also hit. Banks lost 3%, financials services shed 2.8% while the tech sector slipped 2.1%.

Investors will get a read on U.S. employment in the service sector from the ISM non-manufacturing survey later in the day.

Last week, a worryingly weak July payrolls report sparked investor worries on the health of the U.S. economy, spurring a risk-off sentiment globally.

The STOXX 600 saw its worst week in nearly 10 months on Friday and fell below the 500-mark for the first time since April 15.

Markets see a 78% chance of a 50-basis-point cut by the Federal Reserve on Sept. 18, while traders expect a second cut by the European Central bank on Sept. 12.

On the data front, growth in euro zone business activity stalled last month - Purchasing Managers' Index for the currency union fell to 50.2 in July from 50.9 in June.

Growth in Germany's services sector slowed for the second consecutive month in July.

Among individual stocks, Galderma gained 6.7% after L'Oreal said it would acquire a 10% stake in the Swiss skincare firm from a group of major shareholders.

OCI Global jumped 10.3% after Woodside Energy said it would acquire the Dutch chemicals maker's clean ammonia project in Texas for $2.35 billion.