In Europe, the FTSE 100 index of leading British shares closed down 74.43 points, or 1.4 percent, at 5,267.70 while Germany's DAX fell 85.43 points, or 1.5 percent, to 5,702.18. The CAC-40 in France ended 67.94 points, or 1.8 percent, lower at 3,760.22.

On Wall Street, the Dow Jones industrial average was down 149.72 points, or 1.4 percent, at 10,276.59 around midday New York time while the broader Standard & Poor's 500 index fell 19.12 points, or 1.7 percent, at 1,090.68.

Technology stocks in the U.S. were at the sharp end of Thursday's retreat in the U.S. after Bank of America Merrill Lynch downgraded their recommendations on ten stocks, including Intel Corp., Texas Instruments Inc. and Marvell Technology Group Ltd, said David Buik, markets analyst at BGC Partners. Intel was down over 5 percent, making it the biggest faller on the Dow.

The downgrades fed into a growing feeling in the markets that stock valuations are now pricing in too rapid an economic recovery.

Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound, but recent disappointing U.S. housing figures have dented the optimism.

Figures Thursday from the Mortgage Bankers Association showing that more than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September added to the gloom.

Mixed earnings from some of the country's leading retailers have also weighed on sentiment as household spending in the U.S. is key for recovery -- it accounts for around 70 percent of the nation's economy.

A second consecutive quarterly loss from Sears Holdings Inc. did little to ease concerns that the upcoming Christmas trading period may not be as strong as many in the markets have been predicting.

Further insights will be looked for in results later from Gap Inc.

Encapsulating the negative mood was the reaction to what at first glance appeared to be rosy economic forecasts from the Paris-based Organization for Economic Cooperation and Development. Markets ignored the fact that it more than doubled its estimate for 2010 growth in its 30 member countries -- which include the U.S., Japan and Germany -- to 1.9 percent and raised its 2011 forecast to 2.5 percent. (continued...)

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