European and US stocks fell after Federal Reserve Chairman Ben Bernanke indicated the central bank would take no new steps to boost the US economy and ward off another recession.
In a highly anticipated speech at a conference in Jackson Hole, Wyoming, Bernanke did not suggest that the Fed might embark on a new round of bond-buying to increase the money supply in the economy. He did, however, suggest the US government may need to act to stimulate hiring and growth.
The Fed has already pledged low interest rates through to 2013. Some central bank watchers say the Fed has reached the limits of what a central bank can do to aid an economy that is beleaguered by problems that monetary policy can't fix — high unemployment and massive government debt.
"He appears to be saying that the politicians need to start pulling their weight," said Paul Dales, Senior US economist at Capital Economics.
By late afternoon in Europe, Britain's FTSE 100 was down 0.8 percent at 5,088.35 while Germany's DAX shed 1.6 percent to 5,494.83 and France's CAC-40 slipped 1.8 percent to 3,060.27.
Wall Street also dropped, with the Dow down 0.3 percent at 11,111.83 and the S&P 500 down less than 0.1 percent at 1,158.78.
Market sentiment was hurt earlier by figures showing the slowdown in the US is occurring faster than predicted.
The Commerce Department said the US economy grew in the April-June quarter at a 1 percent annual rate, down from an earlier estimate of 1.3 percent and below analyst expectations for a 1.1 percent reading. The data renewed concerns that the US might be headed for another recession.
In Asia, Japan's Nikkei 225 swung between gains and losses throughout the day before closing with a 0.3 percent gain at 8,797.78. South Korea's Kospi rose 0.8 percent after a volatile morning to 1,778.95.
Hong Kong's Hang Seng gave up early gains and fell 0.9 percent to 19,582.88. Benchmarks in Australia, Singapore and the Philippines were also lower while stocks in mainland China were mixed.
Worries that the US could be headed for another recession have in recent weeks caused huge volatility in equities, bonds and foreign exchange.
On Thursday, Germany's main index suffered a flash slide — about 4 percent in 15 minutes — that analysts and traders were at a loss to explain but which dented investor confidence in other global markets.
Bank stocks got some initial support from news that billionaire investor Warren Buffett will invest $5 billion in troubled Bank of America, the largest US bank. Those gains, however, did not last long as the wider market fell.
Mainland Chinese shares were mixed with the benchmark Shanghai Composite Index edging 0.1 percent lower to 2,612.19, after dipping almost 1 percent earlier in the day. The smaller Shenzhen Composite Index gained 0.3 percent to 1,169.95.
In currency trading, the euro dipped to $1.4344 from $1.4368 late in New York on Thursday. The dollar slipped to 77.03 yen from 77.55 yen.
Benchmark oil for October delivery was down $1.91 to $83.99 in electronic trading on the New York Mercantile Exchange. Crude rose 14 cents to finish at $85.30 on Thursday. In London, Brent crude for October delivery was down 48 cents to $110.14 on the ICE Futures exchange.
Traders were watching the violence in Libya for any signs that the country might stabilize and start working on restoring some of the 1.6 million barrels of oil it used to produce before its civil war erupted.
That and fears of a global economic slowdown have weighed on oil prices in recent days.