Fears of a sharp slowdown in the world's two largest economies, the U.S. and China, and concerns over the stability of Europe's currency union combined to batter global financial markets on Friday.
A dismal U.S. jobs report topped off a brutal week that included a report showing China's manufacturing sector _ the backbone for the country's economy for years _ is stagnating. Financial turmoil continued in Europe, where fears simmered that Greece might leave the 17-country eurozone or Spain might need a bailout that its European partners can scarcely afford.
A government report showed U.S. employers created just 69,000 jobs in May, the fewest in a year, while the unemployment rate rose to 8.2 percent from 8.1 percent in April, the first increase in 11 months.
U.S. consumer spending accounts for 70 percent of the economy and a fifth of world demand, so the health of the labor market is crucial for the global economy.
"May's employment report clearly suggests that US labor market conditions are deteriorating again," said Paul Ashworth, chief U.S. economist at Capital Economics. He said the figures were so bad they would prompt speculation that the Federal Reserve might offer new stimulus to the U.S. economy.
In Europe, Germany's DAX tumbled 3.4 percent to close at 6,050.29, while France's CAC-40 lost 2.2 percent to 2,950.47 and Britain's FTSE 100 fell 1.1 percent to 5,260.19.
On Wall Street, the Dow Jones industrial average shed 1.7 percent to 12,181.57 and the S&P 500 dropped 1.9 percent to 1,285.28.
The sell-off started earlier in Asia, where indexes also closed lower, after a survey showed China's manufacturing activity had almost stopped growing in May.
"The (Chinese) data is so bad, and so clearly points to slowdown of growth momentum, that it will likely help convince policy makers that the economy needs more stimulus," Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said in an email.
A similar survey on Europe's manufacturing sector was even more downbeat, falling to 45.1 points, with the measure for Germany _ which had grown steadily throughout the past two years' debt crisis _ hitting a 35-month low of 45.2.
Analysts said the figures suggested the region would experience an even deeper economic downturn than previously forecast. The rising impact on strong economies like Germany might also make them more reluctant to provide bailouts for weaker countries.
Meanwhile, Europe's debt crisis continued unabated, with the government borrowing rates of Spain and Italy rising as top financial experts clamored for European leaders to take action.
The head of the European Central Bank earlier this week told European Union leaders that the euro currency union is unsustainable in its current form. Along with the European Commission in Brussels, he supported the creation of a central banking union that might offer deposit insurance across the 17-country eurozone and even bail out banks directly, bypassing national governments.
As fears of its break up grew in May, the euro fell nearly 7 percent during the month but recovered 0.3 percent on Friday to $1.2397 after hitting a new two-year low earlier in the day.
The likelihood of Greece leaving the euro grew since May 6, when parties opposed to the terms of the country's financial rescue won at the polls. New elections are planned for next month.
This week, Spain became the new focus of the crisis after its borrowing rates soared to nearly 7 percent, a level that is considered unsustainable for a country to continue funding itself by selling bonds to investors. Greece, Portugal and Ireland were forced to ask for financial aid after their rates went over 7 percent.
The economic outlook is more likely to worsen than improve. According to the latest official figures, unemployment in the eurozone remained at a record high of 11 percent in April, though it worsened in struggling countries like Spain, Portugal and Greece. Youth unemployment in Spain hit 51.5 percent.
Earlier in Asia, Japan's Nikkei 225 index closed 1.2 percent lower at 8,440.25 and South Korea's Kospi dropped 0.5 percent to 1,835.51.
Australia's S&P/ASX 200 index lost 0.3 percent to 4,063.90. Benchmarks in Singapore, Taiwan, Indonesia, India and New Zealand were also lower.
Hong Kong's Hang Seng ended 0.4 percent lower at 18,558.34 after briefly posting gains amid hopes for stimulus measures by the Chinese government. Mainland Chinese shares were flat.
Benchmark oil for July delivery slumped $2.84 to $83.69 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.29 to settle at $86.53 in New York on Thursday.
The dollar fell to 78.10 yen from 78.33 yen late Thursday in New York.
Pamela Sampson in Bangkok contributed to this article.