Europe's stock markets fell on Thursday after the United States and European Union announced that they would slap further sanctions on Russia owing to the crisis in Ukraine.
The news sent markets sliding as investors sought to limit risky bets amid heightened concern over what might happen in Ukraine, dealers said.
In afternoon deals, London's benchmark FTSE 100 fell 0.47 percent to 6,752.99 points, Frankfurt's DAX 30 index shed 0.60 percent to 9,799.86 points and the Paris CAC 40 was down by 0.26 percent to 4,357.51.
Milan's stock index dropped by 1.19 percent, and its counterpart in Madrid gave up 0.52 percent.
European equities had leapt higher on Wednesday on the back of strong economic growth data from China.
"Risk aversion has returned to the markets on Thursday after the US and Europe announced a fresh round of sanctions against Russia in response to its part in the Ukrainian conflict," said Alpari analyst Craig Erlam.
"European indices are trading lower across the board and we’re expecting to see a similar response after the opening bell on Wall Street."
Russian stocks and the ruble also fell after the new sanctions were announced.
When trading began on Wall Street, stocks were in fact hit by news of the sanctions and a report that showed a big drop in US housing construction.
The Dow Jones Industrial Average slid 0.29 percent to 17,088.36 points in initial transactions, retreating from Wednesday's record close.
The broad-based S&P 500 fell 0.33 percent to 1,975.01, while the tech-rich Nasdaq Composite Index declined 0.29 percent to 4,413.28.
In Lisbon, shares in Banco Espirito Santo (BES) fell sharply in afternoon trading after two rating downgrades hammered the banking group.
BES shares showed a loss of 9.89 percent to 0.41 euros, while the PSI 20 index on which they are listed was off by 1.42 percent.
In Asia, the Tokyo stock market finished flat, Sydney was marginally higher and Seoul gained 0.37 percent, while Shanghai lost 0.57 percent and Hong Kong was a shade lower.
The mood there was underpinned by word on Wednesday that the powerful Chinese economy had grown more than expected in the second quarter of the year.
French officials were cheered meanwhile by a record low for the country's 10-year debt on government bond markets, where the rate fell to 1.578 percent in intraday deals, from 1.615 at the close on Wednesday.
And in Turkey, the central bank resisted government pressure to slash its reference rate ahead of a presidential election in August, though it did trim its one-week repurchase rate to 8.25 percent from 8.75 percent.
In foreign exchange activity on Thursday, the European single currency climbed to $1.3534, from $1.3524 late Wednesday in New York.
The British pound eased to $1.7104 from $1.7136.
The euro rose to 79.12 pence from 78.92 pence.
The price of gold fell to $1,302.75 per ounce from $1,310 on Wednesday.