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London - European equities fell on Thursday after the Federal Reserve downgraded its US growth forecast, while downbeat Chinese manufacturing data sparked concern about the Asian powerhouse economy.
The euro dropped against the dollar on worries over the Greek debt crisis.
Around midday in London, the benchmark FTSE 100 index shed 0.90% to 5 721.18 points. Frankfurt's DAX 30 slid 1.06% to 7 200.99 points and in Paris the CAC 40 dipped 1.21% to 3 824.47.
The dollar won support meanwhile after the Fed signalled the end of its bond-buying programme this month and indicated further credit easing was unlikely. The euro fell to $1.4254 in London deals from $1.4349 late in New York on Wednesday.
Wall Street sank after the Federal Reserve left monetary policy in neutral on Wednesday and slashed its US growth estimates, while Fed chairman Ben Bernanke warned of economic headwinds that could persist for longer than expected.
"Weakness in the financial sector, problems in the housing sector, balance sheets and deleveraging issues - some of these headwinds may be stronger or more persistent than we thought," Bernanke said.
He also warned of potential risks to the global economy from Greece's sovereign debt crisis.
The Federal Open Market Committee (FOMC) also confirmed that the bank's second round of bond-buying will end this month as the current problems in the economy were temporary and would not need more stimulus.
Markets had been waiting to see what kind of new policies the Fed might pursue after the end of June, when it plans to conclude its $600bn second round of quantitative easing, dubbed QE2.
"Last night's sobering words from Bernanke confirmed the fears of many in the market - the economic recovery remains fragile and there's no further stimulus package coming along for the time being," said IG Index sales trader Yusuf Heusen.
Asian shares mostly edged down on Thursday, as traders also pored over poor Chinese figures and cashed in after a two-day regional rally.
Growth in China's manufacturing activity fell to an 11-month low in June, preliminary HSBC data released Thursday showed, as Beijing's efforts to cool the red-hot economy continued to bite.
HSBC's preliminary purchasing managers index fell to 50.1 in June from a final reading of 51.6 in May, the British banking giant said, showing the sector barely grew as authorities tightened restrictions on bank lending.
A reading above 50 indicates the sector is expanding while a reading below 50 indicates contraction.
"Chinese factories barely expanded in June," said City Index strategist Joshua Raymond.
"A slowdown in growth in China is a growing concern amongst investors, particularly those with exposures to commodities and resource equities.
"Naturally therefore, we have seen a move by investors to downsize positions in the resource sector today, with the miners and oil firms the worst hit," he added.
In the United States, the Federal Reserve slashed its growth estimate for the US economy this year to a range 2.7-2.9%, from an earlier forecast of 3.1-3.3%.
