European officials and bankers remained divided over steps to keep the fiscal woes of heavily indebted nations from spreading.
In the United States, as the clock ticks toward the Aug. 2 deadline for an increase in the statutory $14.3 trillion borrowing limit, investors were nervous about the stalemate in Washington and chances of the economy slipping into a recession only two years after the last one.
The lack of progress in negotiating a US fiscal package has already led all three major ratings agencies to warn of a credit rating downgrade in the event of a US default. Such a move, some traders fear, could send interest rates soaring and erode the US dollar's reserve currency status.
These worries pushed Wall Street stocks lower, with the Standard & Poor's 500 index at its lowest in three weeks.
As worries over fiscal burdens persist, investors have been scrambling to shelter their money in cash, gold, the Swiss franc, the Japanese yen and other less-risky investments.
"There is still a great concern about the (euro zone) peripheral debt crisis and in the US we have our own issues with the consensus the U.S. is on downgrade watch," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "The yen and the Swiss franc are benefiting as safe havens more than the dollar."
The euro was down roughly 0.8 percent versus the dollar and the yen at $1.4067 and 111.22 yen, respectively. The safe-haven Swiss franc hit record highs against the dollar and euro.
Spot gold rose to an all-time peak above $1,600 an ounce after rising more than 3.0 percent for a second straight week last week, a feat it has not achieved since Feb. 2009.
With fears growing that the debt crisis could spread to Italy or Spain, the euro zone's third- and fourth-largest economies, Spanish 10-year government bond yields rose to 6.36 percent, their highest since the introduction of the euro. The Italian equivalent also rose above 6.0 percent.
Unease over a US default seeped into the US Treasuries market, erasing early gains on some safe-haven bids from Europe's debt crisis.
Prices on the benchmark 10-year Treasury note were down 6/32 for a yield of 2.93 percent, up 2 basis points from late Friday and about 10 basis points above a seven-month low it touched last week.
The 30-year Treasury bond extended its loss to a full point, putting its yield at 4.31 percent versus 4.25 percent at Friday's close.
Worries over sovereign defaults on either side of the Atlantic and their possible toll on the world economy and energy demand pushed oil prices lower. US crude futures were down 2 percent at $95.16 a barrel.
The Dow Jones Industrial Average was down 124.73 points, or 1.00 percent, at 12,355.00. The Standard & Poor's 500 Index was down 13.69 points, or 1.04 percent, at 1,302.45. The Nasdaq Composite Index was down 33.40 points, or 1.20 percent, at 2,756.40.
European stocks lost 1.7 percent to their lowest levels since early December, while the MSCI world equity index shed 1.3 percent to its lowest level since late June.
