Fears of a global credit squeeze and worries about U.S. economic strength swept across financial markets on Monday, shaking up stocks, knocking the dollar to a 15-year low and straining popular currency trades.

European shares opened more than 1 percent lower before recovering slightly. Emerging market shares dropped around 1.8 percent and Japanese equities slipped 0.4 percent.

Heightened concerns for economic growth as a result of credit problems also knocked oil prices, which briefly dipped below $74.50, and dragged Shanghai copper futures down 3 percent.

People must accept that the market is headed towards a period of correction, and that it's going to take some time before we see a pickup, said Lim Chang-gue, a fund manager at Samsung Investment Trust Management in Seoul.

A credit crunch is spreading fast, and once started, it won't be easy to reverse, he added.

Investors, meanwhile, sought safety, moving into government bonds and keeping the benchmark U.S. 10-year Treasury yield near 2-1/2 month lows.

Markets are being shaken by the prospect that the borrowing that drives the financial system will either become prohibitively expensive or dry up completely as a result of risk repricing.

This began with difficulties and losses in the U.S. subprime -- or risky -- mortgage business but has spread to other areas, including the mergers and acquisitions that have been a main driver of stocks markets. Several companies have delayed or withdrawn planned offerings of shares, bonds or loans.

There are also concerns about the stability of the financial sector.

Monday's ructions, for example, followed sharp losses on Wall Street on Friday after ratings agency Standard & Poor's warned that mortgage credit problems could hurt investment bank Bear Stearns' (BSC.N: Quote, Profile, Research) profits.

Bear Stearns, which was one of the first to be hit by the subprime upheaval, said it was weathering the storm but that credit markets were in their worst shape in two decades.

U.S. jobs data was weak and there was weaker growth in the U.S. service sector.

RISK AVERSION

Stock markets were the most obvious victim of the flight from riskier assets on Monday.

The FTSEurofirst 300 index ([f top European shares was down 0.7 percent having opened much lower. Britain's FTSE 100 index was 0.5 percent lower, Germany's DAX was 0.14 percent down and the French CAC 40 (.FCHI: Quote, Profile, Research) was down 0.9 percent.

We are seeing a flight to safe havens, to very short and very liquid assets, mainly cash, said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Germany.

Nobody knows which insurer, which bank, which pension fund or which hedge fund will have problems in their credit portfolio, Sonnenschein said.

MSCI's main emerging market stock index was down 1.8 percent.

Earlier, Japan's Nikkei average fell 0.4 percent, leaving it nearly 8 percent off this year's peak marked in February. The broader TOPIX index lost 0.3 percent.

Risk aversion, meanwhile, threatened the carry trade in which investors have borrowed in low-yielding currencies such as the yen to invest in assets in higher-yielding ones.

The yen rose. The dollar was down a third of a percent at 117.66 yen. High-yielders such as the New Zealand and Australian dollars were weakening against the yen.

The dollar fell to a 15-year low against a basket of currencies, as speculation about the credit market and softening U.S. data prompted thoughts of a U.S. interest rate cut.

The dollar index fell below the psychologically key 80.0 level, while the euro rose to within sight of its record high above $1.3850 struck two weeks ago.

Euro zone government bond yields weakened as demand grew. The interest rate-sensitive two-year Schatz yield was down 1.8 basis points at 4.268 percent. The 10-year Bund yield was flat at 4.306 percent.

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