Ratings agency Moody’s warned investors that it would review ratings for European sovereigns given the absence of any “decisive policy measures” at last week’s Brussels summit. Fitch weighed in later in the day adding that there was a lack of a “comprehensive solution”, with the gradualist approach being taken imposing “additional economic and financial costs.”

European shares slumped on Monday as concerns grew that the measures outlined at last week´s EU summit is unlikely to resolve the current euro zone debt issues. Banks and insurance stocks led the declines. The STOXX Europe 600 Banking Index fell 3.9pct, taking its falls to 33.8pct for 2011. Similarly the insurance sector index lost 4.6pct on Monday. Italian 5yr bond yields surged above 7pct, while Spanish 10yr bonds topped 6pct. The FTSEurofirst index fell by 1.9pct while the UK FTSE was down 1.8pct and the German Dax lost 3.4pct.

US shares fell sharply on Monday after three major credit ratings agencies issued fresh warnings that European leaders had failed to solve the current sovereign debt issues. US banks were among the worst performers with the S&P Financial sector down 3pct. A lower revenue outlook by Intel (down 4.2pct) also hurt technology stocks. At the close of trade, the Dow Jones was lower by 162points or 1.3pct. The S&P 500 fell by 1.5pct, and the Nasdaq was lower by 35 points or 1.3pct.

US long-dated treasuries rallied on Monday (yields lower) as investors headed for safe-haven assets. The capped Euro zone bailout fund put more pressure on the ECB to play a bigger role in supporting debt ridden euro economies. US 2yr yields were flat at 0.226pct and US 10yr yields fell by 5pts to 2.0191pct.

The Euro and commodity currencies fell against the greenback on Monday. The Euro fell from highs near US$1.3355 to around US$1.3165 and was near US$1.3190 in late US trade. The Aussie dollar fell from highs around US101.90c to US100.55c, and was near US100.75c in late US trade. And the Japanese yen held between 77.55 yen per US dollar and JPY78.00, and was near JPY77.90 in late US trade.

World crude oil prices fell on Monday as the surge in Italian and Spanish bond yields pressured risky asset classes including commodities. Nymex crude oil fell by US$1.54 to US$97.77 a barrel and London Brent crude fell US$1.36 to US$107.26 a barrel.

Base metal prices were lower on the London Metals Exchange on Monday. Copper hit a two-week low pressured by the threat of a deeper slowdown in the euro zone. Even the upbeat data on Chinese copper imports - which reached their highest level since March 2010 - failed to support the key metal. And the gold price fell to a seven week low with the Comex February gold price down by US$48.60 an ounce or 2.8pct to US$1,668.20.

Ahead: In Australia, dwelling commencements and the NAB Business survey are released. In the US, retail sales and business inventories are released.