The euro fell to a 20-year low against the dollar after decades-high inflation and surging gas prices pushed the euro to a 20 year low in Germany and France.
In August the S&P flash composite Purchasing Managers' Index PMI, which tracks manufacturing and services, showed that a downturn in Germany, Europe's biggest economy, was deepened due to high inflation and rising interest rates.
The PMI data showed that the French economy contracted for the first time in 18 months in August.
Michael Hewson, chief markets analyst at CMC Markets said the PMIs are going to feed into the pessimistic narrative.
The global stock index of MSCI was down 0.2 percent.
The STOXX index of European company shares was flat as rising US stock index futures helped to counter the gloomy economic news. The index fell for nearly a week, leaving it about 11 percent off its January 4 record high.
Benchmark gas prices in the European Union went up 13 percent overnight to a record high, having doubled in less than a month to be 14 times higher than the average of the past decade.
Europe was bracing for new disruptions in Russia's energy supplies.
Markets had begun to recover on bets that the US Federal ReserveFederal Reserve would 'pivot' next year away from its rate rising path.
Markets now expect the Fed to stay hawkish when its chair Jerome Powell addresses the annual Jackson Hole meeting of global central bankers on Friday, ING bank said.
At last year's meeting, central bankers wrong-footed investors by saying that inflation would be a temporary blip, but price rises have been higher, longer-lasting and more broad-based, said Monica Defend, head of Amundi Institute.
Markets are betting on the Fed raising rates by 75 basis points next month, when the Bank of England and the European Central Bank are expected to increase their benchmark rates.
Defend said that the margins would come under pressure later this year, despite the fact that company earnings have shown some reslience.
Defend said that the euro, trading at 98.9 against the dollar, is expected to fall further to 96 by December due to Europe's poorer outlook.
She said that the US and the euro area are on two different tracks.
S&P 500 futures and Nasdaq futures were both firmer, putting a floor under European shares for now.
The pound was down at $1.1755 after diving as deep as $1.1743 and levels last seen in March 2020 at the beginning of the epidemic. The dollar index went up to 109.100, within a whisker of its July peak.
Asian shares fell for a seventh straight session on Tuesday after a renewed spike in European energy prices stoked fears of recession and pushed the euro to 20 year lows.
The Nikkei lost 1.2 percent after a PMI survey showed that factory activity in Japan slowed to a 19 month low in August.
The last time the ten-year yield was trading at 3.0 percent was up more than 50 basis points from the lows of early August.
The ascent of the dollar and yields has been a drag on the gold, which was hovering at $1,739 an ounce after hitting a three-week low overnight.
Saudi Arabia warned that theOPEC producer alliance could cut output, which caused the price of oil to go up.
Brent went up 0.8 percent at $97.29, while US crude rose 1 percent to $91.30 per barrel.