World stocks fell to their lowest since November on Friday, eyeing six-year lows, and the euro dropped as concern about the global economy and the banking sector drove investors towards government bonds and gold.
European stocks followed U.S. stocks lower after the Dow hit a six-year low on Thursday on weak U.S. employment data and talk of nationalisation of U.S. banks.
The euro zone February flash purchasing managers' index for the dominant services sector hit a record low of 38.9 on Friday, suggesting economic contraction in the euro zone in the first quarter may be worse than the final months of 2008.
The level of exposure of western European banks to eastern European economies is also weighing on European banking stocks and the euro zone's currency.
"The focus on central and eastern Europe and worries that private funding there is drying up is depressing the euro," said BNP Paribas chief currency strategist Hans Redeker.
The MSCI world equity index dropped 1.44 percent to 193.91, its weakest since Nov 21.
The FTSEurofirst 300 index of leading European shares fell 2.55 percent towards six-year lows, led by a sell-off in banking stocks.
Benchmark emerging equities dropped 2.8 percent to one-month lows.
Data on Thursday showed U.S. workers drawing unemployment aid jumped to a record at nearly 5 million, suggesting the 13-month-old U.S. recession is deepening.
Meanwhile, Japan's central bank said on Friday a deterioration in corporate profits had gathered pace.
"The market is falling because it is getting in tune with reality, it's a reflection of the deterioration in the global economy and the impact that will have on earnings, which is why this downturn has some way to go," said Peter Dixon, UK economist at Commerzbank.
The euro dropped 0.6 percent against the dollar and 1.2 percent against the yen, while euro zone government bonds rose 58 ticks.
Spot gold prices climbed slightly to $981.80 an ounce after hitting $985.95 on Thursday, the highest since July. Analysts say the $1,000 barrier will be breached soon.
Oil fell more than $1 towards $38 a barrel after posting a 14 percent gain on Thursday, the biggest settlement gain this year.
