Geopolitical tension of US-Russia treaty, Saudi's boycott, Italy's budget led stock market tumbles

There is growing unease meanwhile about Italy's row with the EU over its purse-busting budget, which Brussels said breaks the bloc's financial rules.

Stock markets slumped Tuesday on geopolitical risks stretching from US tensions with Russia and Saudi Arabia to trade issues and Italy's budget stand-off with the European Union.

European stocks picked up where Asia left off, with Frankfurt closing over two per cent down, after Hong Kong closed down more than three per cent.

Wall Street also saw sharp falls in the early hours of trading, although the Dow and Nasdaq held above the morning's worst levels approaching midday in New York.

Mixed US corporate earnings, prompting sharp falls in Dow members Caterpillar and 3M, added to geopolitical angst among investors, dealers reported.

"US equity markets turned sharply lower as investors turned chicken to the tune of some very risk-off mood music," said Neil Wilson at Markets.com.

The dollar was down versus the euro, yen and pound.

The price of gold, which is typically in demand in times of uncertainty, rose by around one per cent on the day.

Participating in Frankfurt's plunge was a share price drop in chemicals and pharmaceuticals giant Bayer after a San Francisco judge on Monday upheld a jury verdict that found Bayer-owned Monsanto liable for not warning a groundskeeper that its weed killer product Roundup might cause cancer.

Judge Suzanne Bolanos denied Monsanto's request for a new trial but cut the $289 million damages award to $78 million to comply with the law regarding how punitive damages awards must be calculated.

Bayer said it would appeal the latest ruling.

There is growing unease meanwhile about Italy's row with the EU over its purse-busting budget, which Brussels said breaks the bloc's financial rules.

The populist government in Rome has refused to back down and cut its spending promises despite warnings about the country's economic outlook.

On Tuesday, the EU Commission rejected Italy's draft budget, the first time the EU executive has ever sent a member state back to the drawing board over spending plans.

"We doubt that the Italian government will alter its budget sufficiently to placate the Commission, suggesting that the two remain on a collision course," Capital Economics said in a note to clients.

Pressure is also growing on Saudi Arabia after it admitted that a journalist critical of Riyadh had been killed at its Istanbul consulate.

Turkish President Recep Tayyip Erdogan on Tuesday said that the "savage murder" of journalist Jamal Khashoggi at the Saudi consulate in Istanbul was meticulously planned, demanding that all those linked to the killing face punishment.

Oil prices slid Tuesday as the market discounted concerns about potential supply disruptions in the Middle East.

Saudi Arabia said Monday it had no plans to repeat its harsh 1973 oil embargo, even as relations with the West sour following the death of Khashoggi.

Earlier in Asia, sharp equity losses brought an end to a rally in previous sessions fuelled by China's top brass issuing coordinated statements of support for the country's markets and officials unveiling tax cut plans.

Elsewhere, nerves have been tested by US President Donald Trump's warning that he will pull out of a nuclear treaty with Russia and bolster America's arsenal.

(With inputs from agencies.)