European stocks closed down more than one per cent yesterday after disappointing results from Unilever and Siemens, while fears China will act to slow its rampant economy dented metal and mining stocks.
A weak performance on Wall Street also weighed as Nortel Networks fell 28 per cent on news the Canadian telecoms equipment maker had fired its top three executives amid regulatory probes of its earnings statements.
More violence in Iraq, on top of a bomb scare at London's main airport and deadly gun battles between authorities and militants in both Syria and Thailand rekindled geopolitical worries and reduced investors' appetite for risk.
"There was a number of factors working against equities today," one London-based trader said. "Earnings have been mixed, comments out of China have highlighted the threat to resource stocks and security concerns are rising. I'm not saying we're going to spiral lower but we need good news to move higher and we just haven't had it today."
The FTSE Eurotop 300 index of pan-European blue-chips closed on its low, down 1.3 per cent at 1,010.4 points, on moderate turnover of about €3.1 billion.
Stocks falling outnumbered those that rose by more than three to one.
The narrower DJ Euro Stoxx 50 index ended down 1.7 per cent at 2,836.7 points.
Markets have been unable to break out of recent ranges as investors weigh improving economic data and expectations of higher earnings against a likely rise in US interest rates.
"We expect to see powerful cross-currents at work in equity markets in the coming period. Rising interest rates will restrain risk appetite, and once US rates actually begin to rise, the possibility of over-tightening will start to do the rounds among investors," said Credit Suisse First Boston strategist Bill McQuaker.
"That said, we also think conditions are ripe for a growth shock in Europe, and that could act as a powerful counterweight if operational gearing comes into play and earnings forecasts head sharply up."
In New York, the blue-chip Dow Jones industrial average was 0.97 per cent weaker while the Nasdaq Composite Index shed 1.4 per cent.
Around Europe, London's FTSE 100 closed 1.1 per cent lower, Paris's CAC-40 ended down 1.6 per cent and Zurich's SMI fell 1.3 per cent.
Frankfurt's DAX closed 1.7 per cent weaker, while the VDAX index of volatility - a gauge of risk fears in large German stocks - made its biggest jump in more than a month.
Financial markets were rattled by comments by Chinese Premier Wen Jiabao in a Reuters interview suggesting Beijing will take strong steps to cool its economy.
Fears that tighter capital controls will curb China's huge demand for commodities like steel and other minerals sent metal prices and mining shares tumbling.