The world markets were still gripped by fear on Monday, as shares finished the day in the red.

I'm an optimist about our economy, and I should be

President Bush

Worries over the US economic recovery persisted, sending shares on Wall Street and the European markets downwards.

By the close, the blue-chip Dow Jones index and the tech-laden Nasdaq index had both lost more than 3% of their value.

The Dow ended 269.50 points down at 8,043.63, while the Nasdaq index was down 41.91 points at 1,206.01.

The losses came despite positive comments on the economy from President George W Bush on Monday.

A lot of retail investors have been burned, and they are angry and confused

Michele Clayman New Amsterdam Partners

"I'm an optimist about our economy, and I should be," Mr Bush told a political fund-raising lunch.

"The fundamentals are strong. Interest rates are low. Monetary policy is sound."

European markets also spent the day in negative territory, with London's FTSE 100 index of leading shares closing down 2%, and below the all-important 4,000 level.

Meanwhile, the German Dax index saw more than 5.5% of its value wiped out.

The general sell-off came after 11 weeks of heavy losses and eroded the gains from a brief rally in early July.

Double dip worries

Investors remained concerned that the US economy could be heading back into recession, having only just clambered out of the last one.

Monday markets

US' Dow Jones -269.5 at 8,043.63 US' Nasdaq -41.91 at 1,206.01 UK's FTSE 100 -79.1 at 3,996.4 Germany's Dax -199.84 at 3,332.65 France's Cac 40 -129.99 at 3,115.38 Japan's Nikkei -4.73 at 9,704.93

Fears of the so-called 'double dip' scenario increased last week when a slew of US data suggested that the economy was growing at a weak pace.

New data on Monday showing that expansion in the US service sector was beginning to slow added to the concerns.

"The data confirmed (fears that) started last week, that the economy has been weaker than we all thought for longer than we all thought," said David Briggs, head of equity trading for Federated Investors.

Bob McKee of Independent Strategy also told BBC News Online: "We'll be looking very closely at the data this week to see if it confirms the rather poor economic data we had last week out of the US,"

"All three major economies (US, Europe and Japan) are showing weakness," he added.

Analysts added that investor sentiment was a key factor.

"A lot of people think we will actually avoid a double dip recession, but the fear is still out there," said Michelle Clayman, chief investment officer at New Amsterdam Partners.

"A lot of retail investors have been burned, and they are angry and confused."

Europe falls

In London, the FTSE 100 index of leading shares closed down 79.1 points at 3,996.4.

Telecoms stocks were out of favour, and shares in UK banks came under pressure, despite better-than-expected results from HSBC.

"Economic data has painted a picture of gathering storm clouds, and we are becoming increasingly concerned about the consumer-facing sectors," said Jeremy Batstone, head of research at NatWest Stockbrokers.

Financial stocks in France and Germany also fell, because investors saw them as particularly vulnerable to any further economic slowdown.

In Germany, the Dax ended down almost 200 points, while in Paris the Cac 40 closed down 4%.

Investors were running scared as the volatility of the past few weeks continued to shake confidence.

"In every single sector you can point to some specific issue which makes it one you want to avoid," said Henk Potts at Barclays Private Clients.