The FTSEurofirst index of top European shares was down 2.6 percent, after Greek Premier George Papandreou said he will put Greece's bailout to a referendum, threatening to intensify the euro zone crisis.
Banks fell heavily with Italy's UniCredit down 7.4 percent. Credit Suisse was 8.2 percent lower after it posted a loss and said it was cutting 1,500 more jobs.
Most Asian stock markets fell. China's factory activity in October was its slowest since February 2009, according to the country's official purchasing managers' index, reminding investors of the risks to the world's No. 2 economy from a sagging global backdrop.
Japan vowed to step into foreign exchange markets again to curb excessive speculation a day after it reportedly sold a record 10 trillion yen ($128 billion) to tame its high-flying currency. Tokyo intervened after the yen repeatedly hit record highs against the dollar.
Among economic indicators, giving clues on the strength of the recovery in the world's biggest economy, the U.S. ISM Manufacturing Index will see a tick up from 51.6 to 52.0 for October, based on a Reuters poll of 70 economists, continuing a recovery after the first half slump.
Construction spending should see a 0.3 percent increase to follow a strong gain of 1.4 percent in August. The rise should be led by an increase in private residential spending.
The Federal Open Market Committee kicks off its two-day policy-setting meeting. The FOMC is likely to take a break from policy changes after two consecutive easing actions.
Pfizer, the world's biggest drugmaker, is expected to report slightly higher earnings of 56 cents per share from 54 cents per share, on higher sales of prescription medicines.
Other companies due to report include oil services firm Baker Hughes.
Wall Street closed its best month in 20 years on a down note on Monday as the failure of trading firm MF Global Holdings Ltd and new worries about Europe's debt crisis hammered financial shares.
The Dow Jones industrial average dropped 2.3 percent; the Standard & Poor's 500 Index fell 2.5 percent; the Nasdaq Composite Index lost 1.9 percent.
(Reporting by Brian Gorman)