Stocks in the United States tumbled on Thursday after another big loss by insurer American International Group.
A cautious sales forecast by Wal-Mart also added to concerns about consumer spending.
AIG, the world's largest insurer, posted its third consecutive quarterly loss of more than $5 billion as it wrote down bad mortgage-related investments.
Earlier, Citigroup announced it would buy back more than $US7 billion of illiquid auction-rate securities to settle charges it misled investors about the debt's risk.
A US government report showed the number of people filing for first-time jobless benefits has jumped to the highest level in more than six years.
However, a report by the National Association of Realtors, showed pending home sales unexpectedly rose in June.
The Dow Jones industrial average slid 224.64 points, or 1.93%, to close at 11,431.43, led lower by Wal-Mart and AIG.
Standard & Poor's 500 Index fell 23.11 points, or 1.79%, to 1,266.08, while the Nasdaq Composite Index dropped 22.64 points, or 0.95%, to 2,355.73.
Trading volume was thin on the New York Stock Exchange, with about 1.23 billion shares changing hands. About 2.22 billion shares were traded on the Nasdaq.
European shares down
European shares also ended down slightly on Thursday.
As expected, both the European Central Bank and the Bank of England left their respective interest rates on hold, at 4.25% and 5% respectively. The ECB signalled it was unlikely to raise euro zone rates again soon.
The euro slid to a new seven week-low against the dollar.
The FTSEurofirst 300 index of top European shares ended down 0.3% at 1,190.06 points.
Around Europe: Frankfurt's DAX was down 0.3% and Paris's CAC 40 edged up 0.2%.
In Britain, the FTSE 100 lost 8.6 points or 0.16% to close at 5,477.5. The index gained 0.6% in the previous session.
NZ & Australian markets up
The New Zealand sharemarket rose 27 points to close at 3379 on turnover of $97 million on Thursday.
Telecom was unchanged at $3.68. Contact Energy rose 7 cents to $8.60, and Fletcher Building was up 19c to $6.80.
Sky City Entertainment was up 4c to $3.62, while The Warehouse dropped 4c to $3.41.
New Zealand Oil & Gas was up 2c to $1.57.
Tower was down 1c to $2.10 after losing a 15-year-old venture with ANZ and National Bank.
In the currency markets: at 5.50am on Friday, the New Zealand dollar was trading at US71.46 cents, 78.73 Australian cents, 36.74 pence, 78.22 yen and 0.4661 euro. The Trade Weighted Index was at 65.12.
The Australian share closed marginally firmer. At 1615 AEST, the benchmark S&P/ASX200 index was up 14.2 points, or 0.29%, to 4983.3, while the broader All Ordinaries climbed 11.9 points, or 0.24%, to 5030.
The September share price index futures contract was down three points to 4967 on a volume of 19,140 contracts.
Total market turnover was 1.35 billion shares worth $A5.44 billion.
Japan shares down
Japanese share prices closed down 0.98% on Thursday. The Tokyo Stock Exchange's benchmark Nikkei-225 index lost 129.90 points to end at 13,124.99.
The broader Topix index of all first-section shares fell 18.46 points or 1.45% to 1,258.81.