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Eurozone heavyweights Frankfurt and Paris were each down around 1.5 per cent at the close, while London held up better.
On Wall Street, the Dow Jones index was 100 points lower in the late New York morning.
"US stocks are lower, along with European markets, with chip-related companies pressuring the technology sector on concerns about the fallout from escalated trade tensions, exacerbated by the ripple effect of US actions taken against Chinese telecom giant Huawei," the Charles Schwab brokerage said in a note.
In the midst of a trade war with Beijing, President Donald Trump has barred US companies from doing business with foreign companies said to threaten American national security.
US internet giant Google, whose Android mobile operating system powers most of the world's smartphones, then announced that it was beginning to cut ties with China's Huawei, which Washington considers a national security threat.
NO QUICK FIX
"Equity markets are in the red ... as dealers are still worried about the trade standoff between the US and China," said analyst David Madden at trading firm CMC Markets UK.
"The fact that Washington has effectively blocked Huawei from the US market is likely to drag out the trade dispute, and the prospect of a quick solution seems slim."
The move could have dramatic implications for Huawei smartphone users, as the Chinese telecoms giant will no longer have access to Google's proprietary services - including Gmail and Google Maps apps - a source close to the matter told AFP.
Reports also emerged on Monday that several US chipmakers providing vital hardware for Huawei's smartphones have stopped supplying the Chinese firm.
SEB emerging markets strategist Per Hammarlund said that the latest development made it unlikely that Beijing and Washington would end their dispute in the runup to next month's G20 summit in Japan.
"Chances of a breakthrough before the G20 summit ... are very small, with both sides likely reassessing their strategies following the failure to reach an agreement in Washington - and the move by the US to blacklist Huawei," Hammarlund said.
SLIVER OF HOPE
However, most Asian markets rose on Monday after Trump showed signs of conciliation elsewhere.
Global markets have been in turmoil for two weeks since Trump threatened - and later delivered - a hike in tariffs on Chinese imports, to which Beijing retaliated.
The move also threw a spanner in the works for long-running negotiations between the economic superpowers that were thought to have been close to conclusion.
But there was a sliver of hope after Trump on Friday removed steel tariffs on Canada and Mexico and announced a six-month delay in imposing steep tariffs on auto imports as he seeks talks with Japan and the EU on the issue.
Meanwhile, Mumbai equities and the rupee soared on the back of exit polls suggesting business-friendly Prime Minister Narendra Modi was on course to be re-elected.
Sydney stocks and the Australian dollar rallied after a shock win for the conservatives, while Japanese dealers were cheered by forecast-beating GDP data.
However, the pound was wallowing near four-month lows on fears Britain will leave the European Union in October without a divorce deal.
In commodities, oil prices rose after OPEC kingpin Saudi Arabia and key producer UAE said they would stick to output caps agreed with Russia.
The news came as tensions between the US and Iran increase, fuelling concerns about supplies from the crude-rich Middle East.
Key figures around 1540 GMT:
London - FTSE 100: DOWN 0.5 per cent at 7,310.88 points (close)
Frankfurt - DAX 30: DOWN 1.6 per cent at 12,041.29 (close)
Paris - CAC 40: DOWN 1.5 per cent at 5,358.59 (close)
EURO STOXX 50: DOWN 1.6 per cent at 3,369.78
New York - Dow: DOWN 0.4 per cent at 25,665.86
Tokyo - Nikkei 225: UP 0.2 per cent at 21,301.73 (close)
Hong Kong - Hang Seng: DOWN 0.6 per cent at 27,787.61 (close)
Shanghai - Composite: DOWN 0.4 per cent at 2,870.60 (close)
Pound/dollar: UP at US$1.2731 from US$1.2724 at 2100 GMT
Euro/pound: UP at 87.75 pence from 87.72 pence
Euro/dollar: UP at US$1.1170 from US$1.1158
Dollar/yen: DOWN at 109.97 yen from 110.08 yen
Oil - Brent Crude: UP 53 cents at US$72.74 per barrel
Oil - West Texas Intermediate: UP 59 cents at US$63.51