'Sticky inflation' worries
Data released Wednesday showed US inflation slowed to 8.3 per cent in April after a four-decade peak of 8.5 per cent in March, but that was less than what experts had forecast and prompted concerns inflation will remain high.
Wednesday's stock trading is "pointing to a market that is becoming more concerned about slowing growth, and sticky inflation, aka rising stagflation and, or recession risk", according to analyst Michael Hewson at CMC Markets.
The dollar has gotten a boost, both as the greenback is seen as a haven in uncertain times and as the US Federal Reserve has taken the lead in raising interest rates in the face of surging inflation.
The dollar is currently at a two-decade high against a trade-weighted index of rival currencies, and on Thursday the euro slumped to a five-year dollar low at $1.0389.
"Given the combination of a relatively hawkish monetary policy stance and a dollar-positive global backdrop, we expect the dollar to grind higher against nearly all developed and emerging market currencies over the course of the Fed's current tightening cycle," said analysts at Capital Economics.
Interest rates are being hiked worldwide to tackle decades-high inflation, which is fuelled mostly by rocketing energy costs.
Both raising prices and borrowing costs threaten to halt growth in many countries, however.
London's stock market was slammed Thursday also by news that the UK economy shrank in March on fallout from soaring inflation, increasing the prospect of a recession -- or two quarters of contraction in a row.
The data sent the pound sliding to a May 2020 low at $1.2166.
World markets have been volatile for much of 2022 owing to China's Covid-19 lockdowns, Russia's invasion of Ukraine, and as surging inflation weighed on consumer sentiment.
Cryptocurrency trading has also been dampening investor sentiment after two so-called stablecoins proved to be anything but. Supposedly pegged to the dollar, both TerraUSD and Tether saw the values collapse.
"The worry is that there will be a spillover to other risk assets like stocks, which could be treated as a source of funds to meet margin calls or which could simply be subjected to an exacerbation of the negative sentiment that has had a vice grip on the market for most of the year," said market analyst Patrick O'Hare at Briefing.com.
Bitcoin slumped below $27,000, before recovering to stand down around 6 percent at $29,091.39.
Key figures at around 1630 GMT
New York - Dow: DOWN 0.3 per cent at 31,729.22 points
EURO STOXX 50: DOWN 0.9 percent at 3,613.43
London - FTSE 100: DOWN 1.6 percent at 7,233.34 (close)
Frankfurt - DAX: DOWN 0.6 percent at 13,739.64 (close)
Paris - CAC 40: DOWN 1.0 percent at 6,206.26 (close)
Hong Kong - Hang Seng Index: DOWN 2.2 percent at 19,380.34 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,054.99 (close)
Tokyo - Nikkei 225: DOWN 1.8 percent at 25,748.72 (close)
Brent North Sea crude: UP 0.8 percent at $108.34 per barrel
West Texas Intermediate: UP 1.2 percent at $107.00 per barrel
Euro/dollar: DOWN at $1.0413 from $1.0513 at 2100 GMT Wednesday
Pound/dollar: DOWN at $1.2228 from $1.2251
Euro/pound: DOWN at 85.18 pence from 85.81 pence
Dollar/yen: DOWN at 128.23 yen from 129.97 yen