Disappointment about the outcome of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy ruled investor sentiment on both sides of the Atlantic overnight.

The New Zealand dollar may rise this week, as equity markets recover from a three-week selloff following the US credit rating downgrade.

The NZ stock exchange has fallen 2.5 per cent on opening, following a big slump on world markets overnight. The NZX 50 Index shed 80.89 points to 3297.86, the lowest level since December.

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A Mexican standoff in the US debt talks, with a potential credit ratings downgrade and a government default at stake, kept investors on the sidelines overnight.

Fear that the debt crisis in Europe is spreading has sent investors running for the exits, hammering both global equities and the euro.

The world's leading credit ratings agencies have been threatened with tighter regulation and break-up by some of Europe's most powerful politicians.

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The tone on Wall Street and Europe's equity markets remained positive overnight amid optimism the EU is making progress in its efforts to avert a Greek default.

World markets fell overnight, pulled down by poor economic news and the surprise announcement that the International Energy Agency would release oil from strategic reserves.

The danger in that case would be that, as in the global financial crisis three years ago, everyone in the market starts looking sideways at their counterparts and worrying about how much they might be exposed.