By Michele Maatouks And Sarah Turner
European stocks started the third quarter in a slide, as weak Chinese and U.S. economic data underlined doubts about the global economic recovery.
The euro rose against the dollar, but oil and gold prices fell.
Weaker-than-expected Chinese manufacturing data was the catalyst for a downturn in equities. China's purchasing managers index fell to 52.1 in June from 53.9 in May, marking the second straight month of slower growth.
Basic resources took the brunt of the selling as base metals prices declined. ArcelorMittal /zigman2/quotes/202790215/composite MT +3.55% fell 2.9% in Paris and Randgold Resources /zigman2/quotes/201432642/composite GOLD +0.07% lost 5.4% in London as the Stoxx 600 Europe basic resources index fell 3.7%.
The pan-European Stoxx 600 index was down 2.5% at 237.30. France's CAC-40 index lost 3% at 3339.90, Germany's DAX fell 1.8% to 5857.43, and the U.K.'s FTSE 100 index slid 2.3% to 4805.75, a 2010 closing low.
While there were a few bright spots in the day's news, they were overshadowed by a raft of disappointing data out of the U.S., which pushed European stocks even further into the red in the afternoon session. Jobless claims, manufacturing ISM and pending home sales all fell short of expectations.
Another report showed the number of workers filling new claims for unemployment benefits rose by 13,000 last week, versus expectations for a 2,000 decline, while the ISM index fell to 56 and pending home sales in May plunged 30%.
The reports also pushed U.S. stocks lower. Early afternoon in New York the Dow Jones Industrial Average was down 0.83% at 9692.55.
The economic weakness more than offset any hint of optimism brought about by a well-received Spanish bond auction and a generous European Central Bank allotment of €112 billion ($137 billion) in six-day loans.
Meanwhile, in the money market, the cost of borrowing euros in the interbank market surged, as banks repaid a hefty €442 billion one-year loan to the European Central Bank. Data from the British Bankers' Association showed the three-month euro London Interbank Offered Rate, or Libor, rose to 0.71750% from Wednesday's 0.70625%, its highest level since Sept. 21, 2009.
On Friday, the euro zone producer price index and unemployment rate are due at 0900 GMT, but the main focus will be on the nonfarm payrolls data due out of the U.S. at 1230 GMT. U.S. factory orders are also scheduled for release at 1400 GMT.
In the currency markets, the euro got a boost from the successful Spanish bond auction. At the time of the European stock markets close, the common currency was at $1.2472 from $1.2229 late Wednesday in New York, and sterling was at $1.5135 from $1.4939. The dollar was at 87.44 yen from 88.39 yen and at 1.0679 Swiss francs from 1.0777 francs.
Late in Europe, light, sweet crude for August delivery was down $2.74 at $72.89 a barrel on the New York Mercantile exchange. Gold for July delivery was down 1.7% at $1,220.40 per troy ounce on the Comex division of Nymex.
In major market action: Automakers were among the losers as French new-car registrations fell 1.2% in June. Renault /zigman2/quotes/200919924/delayed FR:RNO -1.31% fell 4% and Peugeot tumbled 4.6%, while luxury-car maker BMW fell 4.7% and rival Daimler lost 3.6%.
Deal speculation also provided a bit of a focus. Chloride Group fell 4.1% to 370 pence after Swedish-Swiss engineering giant ABB /zigman2/quotes/209404356/composite ABB -1.18% said it has decided not to match a nearly £1 billion pound ($1.49 billion) offer by Emerson Electric /zigman2/quotes/200181610/composite EMR +0.68% to buy the British power-systems specialist. The Emerson bid is worth 375 pence a share. ABB shares fell 2%.
Shares of sugar producer Tate & Lyle /zigman2/quotes/205109332/delayed UK:TATE +0.19% rose 1% after it announced it would sell its EU Sugar Refining operations to American Sugar Refining—better known as Domino Sugar—for £211 million in cash.
BP /zigman2/quotes/207305210/composite BP +0.88% shares also bucked the downward trend, rising 2.8%. The latest report from the oil giant suggests the first relief well to stem the Gulf oil spill may be completed earlier than forecast.
Neelabh Chaturvedi contributed to this article.