Stocks fell Thursday as investors worried about the state of the global economy and whether Greece's debt crisis will hurt the rest of Europe's financial sector.
Fears over the state of the world economic recovery have picked up despite last week's upbeat monthly U.S. jobs data. That's most evident in the performance of commodity prices this week, which continue to soften on expectations demand will weaken.
Investor nerves were further frayed by data suggesting China's economy has slowed down and another increase in the reserve requirement ratio _ the amount of money banks have to hold in reserves.
China's monetary tightening came as fears rose that other fast-growing economies, such as Brazil and India, will be hiking interest rates further in coming months to keep a lid on rising inflation.
All this comes a day after the Energy Information Administration shocked investors with the news that U.S. gasoline demand dropped 2.4 percent last week, the largest drop in seven consecutive weeks of declines, and that oil supplies grew by 3.8 million barrels, more than twice as much as what analysts expected.
The EIA figures indicate that demand for energy in the U.S. may not be as high as thought and that the recovery in the world's largest economy may be faltering _ it's that concern that's been dominating sentiment in the markets ever since.
A raft of U.S. economic data Thursday did little to alter the underlying mood. While monthly retail sales figures came in more or less in line with forecasts after upward revisions to prior months' data, a smaller than anticipated fall in weekly jobless claims disappointed.
The latest US data is very mixed, and will ultimately leave pre-existing trends intact," said Alan Ruskin, an analyst at Deutsche Bank.
In Europe, the FTSE 100 index of leading British shares was down 0.7 percent at 5,931 while Germany's DAX fell 1.2 percent to 7,406. The CAC-40 in France was 1 percent lower at 4,018.
In the U.S., the Dow Jones industrial average was down 0.2 percent at 12,606 soon after the open while the broader Standard & Poor's 500 index fell 0.2 percent to 1,339.
Concerns about the economic recovery continued to weigh on oil prices too. Benchmark crude for June delivery was down a further $1.56 to $96.71 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $5.67 on Wednesday.
While jitters over the state of the global recovery are hurting stocks, Europe's debt crisis _ in particular whether Greece will have to restructure its mountain of debt _ is one of the key themes in the currency markets.
The euro has been badly hit by the resurfacing of Greece's debt woes. It remained relatively friendless Thursday, trading a tad lower at $1.42 by mid afternoon London time.
A week ago, when the European Central Bank's president Jean-Claude Trichet indicated that a rate hike in June was unlikely, it was trading near 18-month highs above $1.49 as investors priced in growing expectation that the central bank would follow up April's first rate hike in nearly three years with another one next month.
Earlier in Asia, Japan's Nikkei 225 index sank 1.5 percent to close at 9,716.65. South Korea's Kospi slid 2 percent to 2,122.65, and Hong Kong's Hang Seng lost 0.9 percent to 23,073.76. Australia's S&P/ASX 200 was off 1.8 percent at 4,696.10.
Mainland Chinese shares extended losses as investors fretted over the economic outlook, after industry figures showed auto sales declined for the first time in more than two years in April. The benchmark Shanghai Composite Index lost 1.4 percent to 2,844.08, and the Shenzhen Composite Index of China's smaller, second exchange fell 1.4 percent to 1,194.88.
Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ, said that some of the reasoning behind the recent weakness across markets is related to investors adjusting their positions ahead of the expected end to the U.S. Federal Reserve's policy of pumping money into the U.S. financial system. The current $600 billion _ commonly referred to as QE2 _ is widely expected to end this summer.
One effect of the monetary injection was to have more money swirling around the financial system, which many investors used buying up riskier assets, such as stocks and commodities.
"We believe that the recent reversals being experienced in financial markets may also reflect an ongoing adjustment to the end of QE2 from the Fed which is coming more closely into view with it scheduled to end in early July," Hardman said.
Pamela Sampson in Bangkok contributed to this report.