LONDON — Worries over the U.S. economy piled pressure on stock markets Thursday, while oil prices sank after a shock decision by the International Energy Agency to release crude reserves to make up for tight supply.
As well as sending oil prices over 5 percent, the decision by the IEA, which represents the interests of many major oil consuming countries as well as the U.S., had a major impact on stocks.
Oil companies from BP PLC in Britain to Total SA in France and ExxonMobil Corp. in the U.S. were all marked down heavily in the wake of the news, adding to the already depressed mood in stock markets.
Following the IEA's decision to release 60 million barrels of oil over the coming 30 days, a barrel of crude as traded in New York was down $5.22 a barrel at $90.23 while the London equivalent, known as Brent, was $6.21 a barrel lower at $108.
The mood in stock markets has been downbeat ever since Wednesday's warning from Federal Reserve chief Ben Bernanke that the problems plaguing the U.S. economy "may be stronger and more persistent" than originally thought. However, with inflation at relatively high levels, Bernanke gave no indication the central bank will back another monetary stimulus after the current $600 billion program runs out at the end of the month.
The slowing U.S. recovery was evident in figures Thursday that showed the number of Americans applying for unemployment rose 9,000 last week to 429,000, while new home sales fell 2.1 percent.
"As the Fed says, housing remains depressed," said Sal Guatieri, senior economist at BMO Capital Markets. "It's likely to stay that way until job growth picks up, and the latest jobless claims figures are far from encouraging."
Stocks have been falling all day but the selling pressure accentuated when Wall Street opened for business.
In Europe, the FTSE 100 index of leading British shares was down 1.6 percent at 5,683 while Germany's DAX fell 1.8 percent to 7,149. The CAC-40 in France was 2.1 percent lower at 3,786.
In the U.S., the Dow Jones industrial average was down 1.6 percent at 11,910 while the broader Standard & Poor's 500 index fell a similar rate to 1,267.
Investors will be keeping a close watch on developments in Brussels, where leaders from the 27 EU countries are gathering for a regular summit.
Greece's debt crisis is likely to be one of the main discussion points ahead of next Tuesday's Parliamentary vote in Athens. If lawmakers in Athens pass a further €28 billion ($40.24 billion) in budget cuts and new taxes and back a €50 billion privatization program, then the eurozone countries will hand over €12 billion ($17 billion) in bailout funds that Greece needs to avoid bankruptcy in mid-July.
"The EU summit is also going to keep investors alert in case there is any definitive line made on Greece, the next tranche of loans or what a second bailout may look like," said Joshua Raymond at City Index.
The Greek crisis kept currency traders on edge, with the euro down 1.2 percent at $1.4148. The currency was also hurt by the retreat in global risk appetite. When investors are willing to take on risk, the euro usually rallies against the dollar and vice versa.
Earlier in Asia, Japan's Nikkei 225 closed 0.3 percent lower at 9,596.74, while Hong Kong's Hang Seng lost 0.5 percent to 21,759.14.
Chinese shares bucked the trend, with the Shanghai Composite Index up 1.5 percent to 2,688.25 and the Shenzhen Composite Index gaining 2.1 percent to 1,111.18. Shares in cement, glass and furniture rallied due to government plans for massive construction of public housing.
Pamela Sampson in Bangkok contributed to this report.