The Dow Jones Industrial Average ended with a loss of 0.53 percent at 12,050 points. The tech-rich Nasdaq composite slid 1.15 percent and the broad-market Standard and Poor's 500 index lost 0.94 percent.

The late-day drop highlighted investor skittishness that has kept momentum for the market to the downside after eight strong months.

The market action followed the worst week in four years on Wall Street and many other global bourses.

Many analysts urged investors to ride out what they see as a temporary "correction."

"We doubt that the market is ready to turn down and stay down," said Gregory Drahuschak at Janney Montgomery Scott.

"Trying, however, to pinpoint a specific end to the current selling is foolhardy. We, however, would note the 12,000 level of the Dow followed by 11,770 as important technical levels."

The big three markets in Europe meanwhile suffered new losses, with the London FTSE 100 index giving up 0.94 percent to close at 6,058.70 points. In Paris the CAC 40 index fell 0.73 percent to end the day at 5,385.03 while in Frankfurt the Dax lost 1.04 percent to reach 6,534.57.

"What we are seeing is the progress of a correction and ... it will run its course when the markets have got to a 10-percent correction from top to bottom," said Mike Lenhoff of Brewin Dolphin Securities in London.

Fred Dickson at US-based DA Davidson said he expected some more selling pressure this week, but that this could ease soon.

Dickson said the rising yen and the prospect of higher Japanese interest rates stoked fears about an unwinding of the easy money used to fuel many global investments, known as the "carry trade," funds borrowed at low rates in Japan.

"A partial unwinding of the Japanese carry-trade that financed some hedge fund activity may be the one factor that could cause the current correction to last beyond a few trading sessions," he said.

"Time will tell if hedge funds unwind substantial current long asset positions in stocks, bond and commodities as a result of the miniscule uptick in Japanese interest rates.  We suspect most of their reaction has already taken place and that the global equity markets should begin to stabilize fairly quickly."

Earlier Monday Asian share prices posted heavy losses as players scaled down their exposure to risky investments after recent global turmoil. The Tokyo benchmark closed down 3.34 percent while shares fell by 4.0 percent in Hong Kong.

Equities started sliding last week as investors took profits from high stock prices and cut their risk exposure amid fears of a strong correction to markets after many indices had hit multi-year peaks earlier in the year.

But on Monday Japan and the United States downplayed the recent upheavals and stressed that the world's two largest economies remained solid.

Japanese Finance Minister Koji Omi, speaking after a meeting in Tokyo with US Treasury Secretary Henry Paulson, said that he and Paulson were not unduly worried.

"I am not concerned about it because market mechanisms are functioning," Omi told reporters.

"We agreed that the economic fundamentals are strong in Japan and the United States. We confirmed our shared understanding that the market should reflect the fundamentals."

In other markets, Toronto's S&P/TSX index slipped 1.18 percent.

Latin American shares faced more pressure from the declines in the US and other emerging markets. Brazil's Bovespa sank 2.81 percent after an eight percent slide last week.

In Buenos Aires, the Merval sank 2.67 percent and Mexico City's Bolsa index slipped 2.02 percent

Agence France-Presse