Stocks around the world were on Tuesday having one of their worst days this month as investors booked some profits following the recent strong run and amid concerns over China's economic growth and the impact of high oil prices on consumers and businesses.
Over the past few weeks, stocks have been buoyant as U.S. economic figures were upbeat and concerns over Europe's debt crisis eased after the European Central Bank gave banks emergency loans and Greece received a second massive bailout. Many stock indexes are trading at multi-month highs, while the main U.S. markets at their highest levels in nearly four years.
But investors appear skeptical that more gains can be sustained in the near term, especially as the scheduled newsflow is relatively light this week, in terms of economic data and central bank pronouncements.
"There seems to be an underlying feeling of caution at the moment as investors struggle to find reasons to increase this current rally further," said Simon Furlong, a trader at Spreadex. "The risk-on trading the markets have experienced recently, fueled by liquidity and a more positive outlook for the U.S. economy seems to be losing some steam."
In Europe, the FTSE 100 index of leading British shares was down 1.2 percent at 5,888 while Germany's DAX fell 1.4 percent to 7,057. The CAC-40 in France was 1.3 percent lower at 3,531.
In the risk-averse trading environment, the euro also suffered, trading was 0.3 percent lower at $1.3191.
In the U.S., the Dow Jones industrial average was down 0.8 percent at 13,134 while the broader Standard & Poor's 500 index fell 0.8 per cent to 1,399.
Sentiment has also been hit by news that house prices dropped in 45 Chinese cities in February, as the government implements measures to cool property speculation. China is now the world's second largest economy, behind the U.S., and its stellar growth over the past few years has helped cushion the impact of the financial crisis. A forecast from miner BHP Billiton that it expects Chinese demand for iron ore used in steelmaking to flatten only added to the concerns.
"Concerns about the extent of China's economic slowdown are weighing on market sentiment," said Nick Bennenbroek, an analyst at Wells Fargo Bank.
Investors around the world are also keeping a close watch on developments in oil markets amid fears that high oil may hamper the global economic recovery and stoke inflation. On Tuesday, China raised the price of retail gasoline for the second time in two months. Though the benchmark New York rate was $1.23 lower at $106.86, prices remain near nine-month highs.
Earlier in Asia, Chinese shares led the retreat with the Shanghai Composite Index closing 1.4 percent lower at 2,376.84.
Elsewhere in Asia, trading volume was low because Japan's markets were closed for a national holiday. Hong Kong's Hang Seng index fell 1.1 percent to 20,888.24 and South Korea's Kospi retreated 0.2 percent to 2,042.15.
Alex Kennedy in Singapore contributed to this report.