MILAN (AP) -- World stock markets dropped sharply Monday as worries intensified over the condition of the eurozone and whether Greece is edging towards exiting the single currency union.

In Athens, Greek party leaders struggled for a ninth day to form a coalition government. As the political wrangling dragged on, markets contemplated the threat that the crisis-stricken country would not meet the terms of its bailout and drop out of the currency club.

"Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now starts to permeate mainstream thinking in Europe," said Michael Hewson of CMC Markets.

Europe stocks tumbled to four-month lows. Britain's FTSE 100 fell 2 percent to 5,465.52 and Germany's DAX tumbled 1.9 percent to 6,451.97. France's CAC-40 lost 2.13 percent to 3,057.99 percent. The euro fell to $1.2839 from $1.2925 late Friday.

Wall Street followed, with the Dow Jones industrial average down 0.8 percent, or 104 points, to 12,716 and the S&P 500 losing 12 points to 1,341. Shares in JPMorgan Chase were down 2 percent after its chief investment officer resigned in the wake of a $2 billion trading debacle.

Taking the hardest hits were the Athens Stock Exchange, which saw shares drop 4.4 percent, and Spain's Ibex, which fell 3.1 percent on continuing concerns that the country's crippled economy would not be able to keep a handle on its borrowing costs.

Problems in Europe — which also included a loss in a state election for Chancellor Angela Merkel's party and by extension her austerity policies — overshadowed news that China's central bank cut bank reserve requirements by 50 basis points to encourage lending.

Asian stocks also endured losses, although one notable exception was Japan, where the benchmark Nikkei 225 index rose 0.2 percent to close at 8,973.84.

Investors' concern about China's economic outlook did not appear to ease despite the Chinese central bank's decision to reserve requirement, which is expected to free over 400 billion yuan ($63.4 billion) in financing.

"The market will remain unstable in the near term," said Zhang Yang, an analyst at Sinolink Securities, based in Shanghai.

Investor nervousness remains rampant because of political uncertainty in Greece and a possible fallout to the rest of the region.

President Karolos Papoulias' efforts to broker a deal among party leaders have failed since May 6 elections yielded no outright winner. Talks were to resume on Monday, but chances of success have been diminished after one leftist party pulled out of the talks, leading the country one step closer to new elections — and bringing its continued membership in the euro into serious doubt.

Benchmark oil for June delivery was down $1.72 to $94.42 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 95 cents to settle at $96.13 in New York on Friday.

In currencies, the dollar sank to 79.81 yen from 79.90 yen late Friday in New York.

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Yuri Kageyama in Tokyo, and Elaine Kurtenbach and Fu Ting in Shanghai contributed to this report.