MSCI's gauge of stocks across the globe shed 1.10 percent, on pace for its biggest one-day drop in more than a month as it receded from two-month highs reached earlier in the week. The pan-European STOXX 600 index lost 1.49 percent, as disappointing corporate updates from Publicis and other companies also weighed, while Wall Street's S&P 500 benchmark index dropped 1.2 percent.
The European Commission sharply cut its forecasts for euro zone economic growth this year and next on expectations the bloc's largest countries will be held back by global trade tensions and domestic challenges. Germany's DAX stock index tumbled 2.7 percent as industrial output in Europe's biggest economy unexpectedly fell in December for the fourth consecutive month.
Safe-haven assets gained, including Japan's yen and gold.
"Even though we are in the midst of earnings season, the macro environment is really impacting global risk sentiment," said Katie Nixon, chief investment officer at Northern Trust Wealth Management in Chicago.
"Fears of a more dramatic slowdown in Europe are being joined with the fears around a slowdown in China. And the broad slowdown in global trade is having a direct impact on some of these economies and some of the results."
Heightened concerns about U.S.-China trade relations also rattled investors, including news that U.S. President Donald Trump and Chinese President Xi Jinping are unlikely to meet before a March 1 deadline set by their governments to reach a trade deal, according to U.S. officials.
"Europe kick-started us to the downside this morning and then there was follow-through from the Trump headline and all of a sudden you have an overdue sell-off on your hands," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.
On Wall Street, the Dow Jones Industrial Average fell 258.8 points, or 1.02 percent, to 25,131.5, the S&P 500 lost 31.79 points, or 1.16 percent, to 2,699.82 and the Nasdaq Composite dropped 99.87 points, or 1.35 percent, to 7,275.41.
U.S. regional lender BB&T Corp will buy rival SunTrust Banks Inc for about $28 billion in stock, the biggest bank deal in about a decade. Shares of both banks rose.
The downgrade in European growth expectations filtered into currency markets, with the euro down 0.06 percent to $1.1353.
The dollar index, which weighs the greenback against a basket of six currencies, rose 0.1 percent, firming for a sixth session in a row.
The dollar's gains come despite the Federal Reserve's dovish shift on interest rates last week.
"When analysing a currency’s exchange rate, it should be relative to a peer. So far it seems none of these peers have a competitive advantage, making the dollar the less unloved currency," Hussein Sayed, strategist at forex broker FXTM, said in a note.
U.S. Treasury yields fell for a third straight session. Benchmark U.S. 10-year notes last rose 13/32 in price to yield 2.6572 percent, from 2.704 percent late on Wednesday.
Oil fell as the market confronted concerns that global demand growth would lag in the coming year.
U.S. crude fell 2.44 percent to $52.69 per barrel and Brent was last at $61.70, down 1.58 percent on the day.
(Additional reporting by Sinéad Carew and Saqib Iqbal Ahmed in New York; Editing by Bernadette Baum, Dan Grebler and Susan Thomas)
By Lewis Krauskopf