European stocks markets slumped on Thursday, weighed down by debt strains in the United States, which offset earnings news from blue-chip companies, while the euro rose against the dollar.
London's FTSE 100 index of top shares dropped 0.72 percent to 5,813.30 points in late morning deals, Frankfurt's DAX 30 slumped 1.66 percent to 7,131.12 points and in Paris the CAC 40 index shed 1.28 percent to 3,685.31.
The European single currency rose to $1.4376 in London deals from $1.4363 late in New York on Wednesday. The dollar dropped to 77.68 yen from 77.96 yen.
"Washington failing to push the debt ceiling higher continues to weigh on the market today despite a raft of positive corporate numbers," said Manoj Ladwa, senior trader at ETX Capital.
"Further weakness is likely over the next twenty-four hours if the issue remains unresolved."
Asian markets also fell on Thursday, following big losses overnight on Wall Street, as the deadline approaches for US lawmakers to strike a deal to avoid a disastrous default.
Adding to selling pressure was a decision by Standard & Poor's to further downgrade Greece's credit rating, saying plans to restructure the country's debt would entail a default.
The White House and Democrats and their Republican rivals continue to bicker over a deficit-slashing plan that would allow a hike in the US debt ceiling, despite the government running out of money to pay its bills within a week.
The House of Representatives is due later Thursday to take up Republican Speaker John Boehner's plan for raising the $14.3 trillion debt limit, although it will likely fail due to a White House veto threat.
In anticipation of this, lawmakers are hunting for a compromise to avert a debt default, which threatens to have a devastating effect on global markets and the world economy.
Despite the August 2 deadline approaching with no sign of agreement, markets had been relatively calm until Thursday, with investors saying they were confident Congress would strike a deal.
Investors were also closely following the second-quarter earnings season, which is in full flow across the globe. In London on Thursday, Royal Dutch Shell said that net profits almost doubled to $8.6 billion (6.0 billion euros) in April-June as improved income from high oil prices offset a drop in output.
However its share price was down 0.88 percent to 2,245 pence in London morning deals. In Frankfurt, Volkswagen shed 6.66 percent to 134.45 euros even though Europe's biggest car maker said its net profit tripled in the first half.
Investors were disappointed that VW did not give a detailed increased outlook for the year however.
French telecom equipment group Alcatel-Lucent meanwhile plunged 8.64 percent to 3.088 euros as its return to profit in the second-quarter was weaker than expected.
The company was back in the black after years of problems, with net profits of 43 million euros ($62 million) from April to June.