Asian stocks tumbled and Brent crude futures climbed to a 28-month high near USD 100 a barrel as fears of unrest throughout the Middle East and choking energy prices sparked by deadly protests in Egypt sent investors rushing to reduce risk.
More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak. A wider conflagration in the region could threaten the flow of oil at a time when the global recovery was just beginning to look sustainable.
"For the global economy, Egypt is less important, though it does matter for access to the Suez Canal, a key oil distribution route," ANZ Bank economist Sharon Zollner said in a note to clients.
"The greater fear is that the turmoil could spread to other Middle East countries, including even Saudi Arabia. If that happens, then all bets on oil prices are off."
The US dollar was gaining ground on the euro for a second day, potentially snuffing a three-week rally in the common currency that had pushed it to two-month highs, as investors chose safety and liquidity above all else.
Japan's Nikkei share average was down 1.6%, at one point hitting its lowest since early December 2010.
The MSCI Asia Pacific ex-Japan stock index fell 0.9%, with selling scattered across the consumer discretionary, industrial and materials sectors.
After hitting a two-and-half-year high on January 19, the index has declined 1.2%.
US S&P 500 futures were down 0.2% after Wall Street closed down 1.8% on Friday, suggesting the pullback from risk assets like equities globally had room to run.
US crude for March delivery was trading at around USD 90 a barrel after hitting a high of USD 90.87 a barrel early in the session. Focus would likely be on Brent futures though, where the lead month contract was trading just shy of USD 100 a barrel.
In the currency market, the euro slipped 0.2% on the day to USD 1.3571. The euro was also down 0.3% against the Swiss franc to 1.2781 francs, after sliding 1.2% against it on Friday.
Gold and other precious metal would also probably be a haven. Spot gold was steady in early trade at USD 1,339 per ounce as more investors saw it as relatively cheap after the metal touched a near four-month low on Friday.