US stocks opened sharply lower on the first trading day of 2016 after lackluster Chinese economic data rekindled worries of slowing global growth.

The Dow Jones industrial average fell 190.14 points, or 1.09 per cent, to 17,234.89, the S&P 500 lost 23.48 points, or 1.15 per cent, to 2,020.46 and the Nasdaq Composite index dropped 111.48 points, or 2.23 per cent, to 4,895.93.

European shares also fell sharply with the pan-European FTSEurofirst 300 index losing 2.4 per cent, its biggest one-day drop since a 3.3 per cent decline on December 3rd. The euro zone’s blue-chip Euro STOXX 50 index declined by 2.6 per cent. Germany’s DAX slumped 3.5 per cent. In Dublin, the Iseq index was down 1.5 per cent or 104.98 points to 6,686.70.

China’s factory activity contracted for the 10th straight month in December and the decline accelerated compared with November, a private survey showed.

Chinese and Asian shares slumped, with China’s benchmark CSI300 share index tumbling 7 per cent on Monday, prompting the stock exchange to halt trading for the rest of the day. Mining stocks fell, since China is the world’s biggest consumer of metals.

Oil prices also rebounded from previous lows as tensions escalated in the Middle East following Saudi Arabia’s execution of a prominent Shiite cleric.

Market volatility increased, with the Euro STOXX 50 Volatility Index gaining ground. JP Morgan's equity strategist Mislav Matejka said he would stay "overweight" on euro zone equities, given signs of an economic recovery in the region. But he was more cautious on equities overall, citing tensions in the credit market and a weakening in the US stock market.

“We would look to use any strength as an opportunity to reduce equity allocation,” Mr Matejka said.

He advocated selling out on any move up.

Shares in Ferrari fell in their debut in Milan on Monday as the luxury sports-car maker completed its spin-off from parent Fiat Chrysler.

French conglomerate Bouygues outperformed to rise 2 per cent after a media report that Orange was closer to buying Bouygues' telecoms arm for €10 billion.

Air France KLM shares rose by 3.7 per cent after Bank of America Merrill Lynch upgraded its rating on the stock to "buy". Reuters