European stock market indices dropped on Friday as investors focused on US budget talks to avert a fiscal crisis that could see hundreds of billions of dollars in automatic tax hikes and spending cuts tip the world's biggest economy into recession.
Heightened tensions in the Middle East undermined sentiment further, traders said.
At the close of trading, London's benchmark FTSE 100 index of top companies had given up 1.27 percent to 5,605.59 points and Frankfurt's DAX 30 index slid 1.32 percent to 6,950.53 points, the first time it has closed below 7,000 points since September 5.
In Paris the CAC 40 dropped 1.21 percent to 3,341.52.
The European single currency weakened to $1.2714 from $1.2778 late in New York on Thursday. The price of gold rose to $1,713.50 an ounce from 1,710.00 on the London Bullion Market .
On Wall Street, the Dow Jones Industrial Average of leading stocks showed a loss of 0.44 percent in midday trading, while the tech rich Nasdaq index was off by 0.65 percent, with analysts pointing to an unexpected decline in the nation's industrial production in October.
The broader Standard & Poor's 500 index was 0.73 percent lower after the US Federal Reserve reported that US industrial output fell 0.4 percent in October largely due to the impact of the devastating superstorm Sandy, which blasted the heavily industrialised northeast of the country at the end of the month. Most analysts had expected an increase of 0.1 percent.
The data offset a Wall Street Journal report that White House officials were already in advanced internal talks about a plan to replace the massive "fiscal cliff" spending cuts due in January.
"Wall Street remains wary ahead of today's inaugural fiscal cliff negotiations between President Barack Obama and congressional leaders," noted Karee Venema at Schaeffer's Investment Research.
Analyst Craig Erlam at the trading group Alpari said that "expectations are understandably low regarding a positive outcome from the first meeting. These talks are likely to go on for weeks before they come to any kind of agreement.
If the so-called fiscal cliff package of measures comes in as planned on January 1 the US economy would likely tip back into recession, which would have a devastating effect globally.
Erlam warned: "The fiscal cliff has taken over the eurozone recently as the greatest threat to the global recovery, which at best is gradual and very fragile."
Financial markets were also on edge after Gaza militants fired rockets at both Jerusalem and Tel Aviv, aiming for Israel's political and commercial hearts and prompting the country to call up thousands more reservists in readiness for potential ground operations.
The military wing of the Islamist Hamas movement which rules Gaza said it fired the rocket at Jerusalem, the first to strike the outskirts of the Holy City in the history of the Israeli-Palestinian conflict.
Asian markets had traded mixed earlier in the day as eurozone recession data and US worries dented confidence, but Tokyo posted strong gains for a second straight session as the yen weakened further.
Hong Kong stocks climbed 0.24 percent, Tokyo surged 2.20 percent and Seoul was 0.53 percent lower, while Shanghai shed 0.77 percent and Sydney closed down 0.29 percent.
Tokyo's Nikkei index soared as the yen continued to be sold off following comments from the frontrunner to be the country's next prime minister that he would push for unlimited monetary easing.
Shinzo Abe, a former prime minister and now leader of the Liberal Democratic Party, said he would seek more control of the central bank and push for strong stimulus measures to spur the economy.
Japan's Prime Minister Yoshihiko Noda has dissolved the lower house of parliament Friday for an election on December 16, in a political gamble widely expected to strip his centre-left party of power.