Nervous investors channeled cash into less risky assets as uncertainties resurfaced over Italy and Greece's willingness to implement tough spending budget and debt measures demanded by other Eurozone members, while Germany hardened its stand against providing them with more aid.
"Europe is where you have to be focused at this time, and Europe doesn't look good, " said Stephen Massocca, managing director at Wedbush Morgan in Bay area.
Wall Street stocks were down 1. 5% after a three-day vacation weekend, with Friday's US jobs report, which showed zero internet jobs growth, also hurting investor confidence.
The Swiss central bank set a limit of just one. 20 francs to the euro in an attempt to maintain its currency strength from damaging the economy. Global investors have poured money to the Swiss franc seeking a relatively safe asset.
The move took a few of the shine off gold, but it was not far below it's record high above $1, 900 an ounce.
US and German born government debt, perceived as safer assets amid the turmoil, rallied as well as pushed benchmark yields to historic lows.
The pan-European FTSEurofirst three hundred was down 0. 7% after falling more than 4% on Monday on renewed worries about Europe's capability to solve its debt problems.
US and European equities pared their losses after a report showed that growth in america services sector unexpectedly improved in August.
This snapshot soothed some worries how the world's biggest economy is on the brink of recession, although not enough to scale back expectations the Federal Reserve would participate in another round of monetary stimulus to boost sluggish US development.
Policy-makers on both sides of the Atlantic are struggling to generate economic fixes, as Americans and Europeans have grown skeptical as well as hostile to more proposed stimulus programs and/or steep budget cuts to lessen government debt.
G7 finance ministers and central bankers will convene within Marseilles, France starting on Friday. The two-day meeting could reveal further erosion one of the world's wealthiest nations to allowing markets to set exchange prices.
"The G7 normally supports 'free-floating' currency policies (often as a veiled push for China to allow yuan appreciate faster). However, the group will be at odds this week to keep to that line, given coordinated G7 efforts in March to weaken the yen and efforts by a minimum of three of the seven G7 members to depreciate local currencies within the last year or so, " Rebecca Patterson, chief market strategist along with JP Morgan Asset Management, wrote in a client note upon Tuesday.
World stocks as measured by MSCI fell 1. 6%, whilst Japan's Nikkei closed off 2. 2%.
After the Swiss Nationwide Bank announcement, the euro was trading at just above the central bank's new target of just one. 20 Swiss francs after being at around 1. 10 francs. It fell to some record low 1. 0075 on Aug. 9.
The euro touched an eight-week low from the dollar and was last trading at $1. 3979.
Ten-year German born and US government debt yields stayed near historic lows beneath 2%, signaling that the intensive search for safety was ongoing.
The Swiss central bank's move rocked a number of additional assets, notably gold. It lost some allure to trade from $1, 873 an ounce after touching a record high from $1, 920.
In the oil market, US crude futures with regard to October delivery were down $2. 09 at $84. 36 the barrel after touching a session low of $83. 20.