Oil prices continued their slump, which hit a 5½ year-low.
The drop weighed on energy stocks, dragging down broader indices.
Renewed political uncertainty in Greece and concerns about the negative impact of a stronger US dollar were also possible factors weighing global sentiment in equity markets.
Yields on US treasuries fell in tandem with weaker sentiment.
The drop oil prices also suggest inflation will remain low in addition to raising concerns about global demand.
Further, widely watched bond investor, Bill Gross said that it will be difficult for the Fed to raise interest rates much and that the Fed may not raise short-term rates until late 2015 if at all.
Yields on 10-year treasury notes fell 8 basis points to 2.04%.
Similarly, yields on Australian bonds fell according to futures. Australian 3-year bond yields dropped 3 basis points to 2.08%, and 10-year bond yields fell 4 basis points to 2.67%.
The US dollar index was largely unchanged.
However, the euro fell close to a nine-year low against the US dollar and weakened against the AUD.
A resurfacing of concerns over a Greek exit from the euro zone and weak German inflation weighed on the euro. The Australian dollar was relatively unchanged, and currently trading at just below 81 US cents.
Oil prices fell to 5 ½ year lows on both Brent and US benchmarks. US oil prices fell to below US$50 a barrel at one point, reflecting ongoing concerns over supply excesses.
Gold prices rose, supported by risk aversion and concerns about global growth.
The AiG performance of manufacturing index fell from 50.1 in November to 46.9 in December, back into contraction territory.
The index has stood below 50 for 4 out of the last 5 months, and suggests that conditions remain uneven for the sector.
The depreciation in the Australian dollar will however, provide support to manufacturing activity.
Eurozone Sentix investor confidence rose from -2.5 to 0.9 in January. The current index remained negative at -11.0, up 5 points, while expectations gained 1.5 points to 13.5.
German inflation fell from an annual pace of 0.5% in November to 0.1% in December on the preliminary EU harmonised measure.
Consensus estimates were for 0.2%.
This outcome, along with falling prices elsewhere in the zone heightens the risk that the CPI estimate for the euro zone will print negative, which is due to be release on Wednesday.
Although the key deflationary impact is largely due to "one-off" fall in energy prices, the risk it will feed into lower inflation expectations further confirms the case for a broad-based quantitative easing program.
The UK construction PMI fell from 59.4 to 57.6 in December, its third fall running and its lowest level since July 2013.
The index remains well above 50, suggesting that the sector is still growing, but at a more moderate pace than in early and mid-2014.
The ISM-NY jumped from 62.4 to 70.8 in December, the highest since June 2010.
It stands in contrast to the NY Empire index which fell into contraction territory in December.