Signs the euro zone's economic downturn is deepening and worries over a possible financial meltdown in Cyprus sent world shares, oil and the single currency lower on Thursday.
The falls would have been steeper but for earlier data showing a pick-up in Chinese factory activity and a reiteration on Tuesday by the U.S. Federal Reserve of its commitment to its ultra-loose monetary policy stance.
The euro dipped briefly below $1.29 to the dollar and fell one percent against the yen when the March readings of Purchasing Manager's Indexes (PMIs) from across the euro area showed activity slowing from already weak levels.
"Given the deterioration in the political and financial market outlook there is really little hope from what we see that there is going to be a turnaround in the second quarter," said Chris Williamson, economist at index compiler Markit.
The FTSEurofirst 300 index of top European shares extended its falls after the data to be down 0.4 percent to 1,193.41 points. The main market indexes in London, Paris and Frankfurt were between 0.7 and 1.0 percent lower.
While German 10-year government bonds, used as a safe-haven in times of market stress, stayed close their 2013 lows at 1.39 percent.
MSCI's world equity index dipped 0.1 percent, on course for its worst week since November last year when worries about the U.S. fiscal cliff were worrying investors.
In addition to the bleak economic numbers, market attention stayed on Cyprus where crisis talks among the political leaders in Nicosia have resumed to seek a new bailout plan, which could involve Russia.
The European Central Bank has set a Monday deadline for Cyprus to agree a new plan, threatening to cut off funding to the island's cash-strapped banks if a programme is not agreed by then with the EU and the IMF.
Cyprus has faced the prospect of bankruptcy since Tuesday when its tiny parliament voted unanimously against a levy on bank deposits to raise 5.8 billion euros ($7.5 billion) demanded by the EU under a 10 billion euro rescue.
The worries abut Cyprus look to be contained for now as Spain was able to sell 4.5 billion euros of new bonds in an auction that drew strong demand and saw lower yields than at recent debt sales.
"All in all, no signs of Cyprus contagion in this sale," said Marc Oswald, a strategist at London-based Monument Securities.
Most markets had begun the day firmly underpinned by the Federal Reserve's latest policy statement at which the current aggressive policy stimulus programme was left unchanged despite recent improvements in the U.S. economy.
Fed Chairman Ben Bernanke said the central bank might slow the pace of its bond buying but only after the labour market showed sustained improvement over a number of months.
Asian shares gained a further lift when the HSBC Purchasing Managers' Index for China showed a rise to 51.7 in March from 50.4 in February, pointing towards solid but not spectacular first-quarter growth in the world's second-largest economy.
The MSCI's broadest index of Asia-Pacific shares outside Japan, rose 0.1 percent after that data.
Japan's Nikkei stock average climbed 1.3 percent, hitting a 4-1/2-year high as exporters gained on the Fed's commitment but also expectations of further monetary easing by the Bank of Japan.
Oil markets drew support from the Chinese data to hold on to much of their previous day's gains but have eased slightly due the concerns about Cyprus and the wider euro zone.
U.S. crude futures fell 0.5 percent to $92.96 a barrel while Brent eased 0.3 percent to $108.38.
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