Traders in the UK reacted with concern over the latest restrictions announced by the British government on Saturday and the increased fears of a no-deal Brexit.
The FTSE 100 blue chip index had fallen by more than 1.7 per cent when trading finished on Monday.
Companies including IAG, which owns Aer Lingus, and engine maker Rolls-Royce took heavy hits, although online favourites Ocado and Just Eat Takeaway saw their shares rise.
The FTSE 250, which is generally made up of UK-focused businesses, took a heavier fall and was down 2.11 per cent. French and German counterparts also saw falls on their respective stock markets.
Sterling fell against the dollar and euro, down 0.42 per cent and 0.45 per cent respectively, after minor improvements later in the session. One pound was worth $1.334 and €1.091.
Companies being hit hardest were those most affected by the new Tier 4 restrictions – which have seen European countries stopping travel to the UK – including airlines and travel firms such as easyJet, FirstGroup, National Express, Tui, Trainline and cruise ship operator Carnival.
IAG and easyJet were among those hit hardest, with shares down 7.2 per cent and 8 per cent respectively.
Pubs and leisure groups took a dent, with Mitchells & Butlers, Wetherspoon and Cineworld down 3.8 per cent, 3.6 per cent and 5.3 per cent respectively.
Retailers also felt the pinch from the new restrictions in London and the south-east of England, where non-essential stores have been told to close their doors, with Mike Ashley’s Frasers Group down 10 per cent, Dixons Carphone down 6.9 per cent and WH Smith down 4.3 per cent.
But online players saw boosts in share prices, with online supermarket Ocado and Just Eat Takeaway seeing shares rise 5.6 per cent and 1.9 per cent respectively.
Neil Wilson, financial analyst at Markets.com, said: “It’s been a very rough start to the Christmas week for the pound, as the lack of a Brexit deal and the closure of key freight routes to Europe knocked sentiment.
“Brexit talks continue today but key sticking points remain, whilst several European countries have blocked travel from the UK due to a mutant strain of the coronavirus rife in the south-east of England.”
He warned that the pound could see a “severe downside shock if there is no deal by Christmas”.