Alcoa reported after Wall Street closed Monday a quarterly loss of US$1.19 billion (S$2.58 billion). The bigger than expected loss came only days after the aluminum giant announced job and production cuts due to sinking prices and weaker demand.

In Europe, the FTSE 100 index of leading British shares was down 91.51 points, or 2.1 per cent, at 4,334.68, even though shares of the country's biggest supermarket chain Tesco PLC rose more than 3 per cent after it revealed in-line sales growth during the crucial Christmas trading period and indicated it would recruit some 10,000 people this year.

Meanwhile Germany's DAX fell 98.21 points, or 2.1 per cent, to 4,621.41. Metro AG shares were down around 1.5 percent after the German retailer reported lower-than-expected sales and profits.

France's CAC-40 was 66.80 points, or 2.1 per cent, lower at 3,179.32, with BNP Paribas SA down more than 5 per cent amid reports the bank will not buy all of troubled Fortis's insurance operations.

PSA Peugeot Citroen, France's biggest carmaker, fell 4 per cent after it reported a near 9 per cent fall in 2008 sales.

The losses in Europe followed equivalent retreats in the US and Asia.

'Earnings and economic disappointments are the main contributors to the rise in risk aversion both of which are likely to act as a persistent drag on markets over coming weeks,' said Mr Mitul Kotecha, an analyst at Calyon Credit Agricole.

'The earnings season kicked off with disappointment from Alcoa after the company reported earnings that missed forecasts,' he added.

Investors will have a raft of earnings to assess over the coming days and weeks as they assess whether the market is discounting the decline in profits correctly.

A key focus of attention in markets will be the passage of President-elect Barack Obama's fiscal package through Congress - expected to amount to around US$800 billion in tax cuts and increased government spending.

Stock markets around the world enjoyed a relatively strong rally at the start of 2009 but that came to an abrupt halt last week amid grim economic and corporate news from the US, most notably the rise in the unemployment rate to a 16-year high of 7.2 per cent.

Earlier, most leading Asian markets retreated, with Japan's Nikkei 225 stock average tumbling 422.89 points, or 4.8 per cent, to 8,413.91, as it caught up with Asia's losses on Monday after being closed for a holiday.

Hong Kong's Hang Seng index slid 2.2 percent to 13,668.05, Australia's index slipped 0.8 per cent and Shanghai's market traded 2 per cent lower amid news that China's trade slump worsened in December as exports fell at their fastest rate in a decade. South Korea bucked the trend with the Kospi up 1 per cent to 1,167.71.

The losses around the world are expected to continue when Wall Street opens later.

The Dow Jones industrial average fell 125.21 points, or 1.5 per cent, to end at 8,473.97. Broader stock indicators also declined, with the Standard & Poor's 500 index shedding 20.09, or 2.3 percent, to 870.26.

Futures pointed to a weaker open on Wall Street with Dow futures down 70 points, or 0.8 per cent, to 8,374 and S&P 500 futures off 8 points, or 0.9 per cent, at 860.10.

The dollar slipped 0.1 per cent to 89.03 yen, while the euro was 0.5 per cent weaker at $1.3292.

Light, sweet crude for February delivery was down 97 cents at US$36.62 a barrel in electronic trading on the New York Mercantile Exchange on expectations crude demand will weaken amid a severe global economic slowdown. Crude prices have fallen more than 25 per cent since reaching just above US$50 a barrel last week. -- AP