Fears of a slowdown in the U.S. and China, the world's two biggest economies, and renewed concerns over Spain's debt hurt markets on Thursday, driving investors to book gains at the end of an otherwise profitable quarter.
Indicators out of the U.S. have disappointed in recent days, with the latest figures for orders of durable goods _ items like aircraft, kitchen appliances and construction tools _ rising less than expected in January.
Although the jobs market has been recovering, evidenced Thursday by a drop in weekly jobless claims to a four-year low, the property market remains the thorn in the U.S. economy's side, with house prices falling.
The performance of the U.S. economy, which consumes more than any other country, is increasingly bound to that of China, which produces and exports the bulk of those goods.
So a marked deterioration in Chinese economic indicators has compounded worries that the two economies are slowing each other down. Tepid global consumption, along with rising cost of labor, energy and raw materials, is weighing on Chinese manufacturers.
The cooling in Chinese activity is particularly worrying for investors as the country had proven to be a key pillar of growth during the past years, when many advanced economies dropped into recession.
So after enjoying strong gains on stocks during the start of the year, investors appeared ready to lock in those profits by selling before the end of the financial quarter on Friday. Renewed uncertainties over Europe's debt problems as a general strike brought much of Spain to a standstill, added fuel to the retreat.
"After such a strong quarter, this rally is ending with a whimper rather than a bang, perhaps understandably given the run up in global markets," said Chris Beauchamp, market analyst at IG Index.
In Europe, Britain's FTSE 100 closed 1.1 percent lower at 5,742.03, Germany's DAX lost 1.8 percent to 6,875.15 and France's CAC-40 fell 1.4 percent to 3,381.12. The euro was down 0.4 percent at $1.3266.
Further weighing on European markets was a warning by the Organization for Economic Cooperation and Development on Thursday that the region's growth is expected to lag most other rich countries.
While the U.S. economy is picking up, the three largest euro economies _ Germany, France and Italy _ would, in aggregate, contract in the first quarter. That's mostly due to Italy's poor performance, the OECD said in a report.
U.S. stocks tracked global markets lower despite a 5,000 drop in weekly jobless claims to 359,000. The Dow Jones industrial average shed 0.6 percent to 13,052.46 while the broader S&P 500 fell 0.9 percent to 1,393.06.
In Asia, Japan's Nikkei 225 index closed 0.7 percent lower at 10,114.79 and Hong Kong's Hang Seng tumbled 1.3 percent to 20,609.39.
Mainland Chinese shares spiraled downward amid dwindling hopes that monetary policy will be loosened to offset the economic slowdown. The benchmark Shanghai Composite Index lost 1.4 percent to 2,252.16 and the Shenzhen Composite Index lost 1.6 percent to 895.07.
Benchmark crude oil was down $2.05 at $103.36 per barrel in electronic trading on the New York Mercantile Exchange. The drop added at a loss of $1.92 on Wednesday after France's government said it is optimistic that it will, together with the U.S. and other Western nations, release emergency crude stockpiles to ease the recent climb in energy prices.
Pamela Sampson in Bangkok contributed to this report.