Britain's FTSE 100 index of leading shares was down 35.24 points, or 0.9 percent, at 4,005.65, while Germany's DAX was 77.34 points, or 1.7 percent, at 4,493.73. The CAC-40 in France was 34.01 points, or 1.0 percent, lower at 3,264.17.
Earlier Japan's Nikkei 225 stock average tumbled 7 percent at the open but recovered to close down 2.5 percent at 8,460.98, while Hong Kong's Hang Seng Index was down 4.7 percent at 13,603 after falling more than 6 percent earlier. South Korea's market was down more, as the benchmark Kospi fell nearly 10 percent at one point but closed down 7.5 percent at 1,049.71.
The latest stock market jitters around the world have been stoked by a stream of disappointing earnings updates, particularly in the U.S. over the last few days. The worries contributed to a 6.1 percent drop in the Standard & Poor's 500 index on Wall Street on Wednesday that left it at its lowest level since April 2003.
Fears about the economy have become the primary concern as worries over credit markets and the banking system have been assuaged, for now at least, by government efforts to shore up banks, as well as massive liquidity boosts from the world's leading central banks.
"So long as there's this rather blunt, and perhaps rather realistic, fear of a global recession looming, then there's certainly scope that stocks will continue to struggle to find support in the short to medium term," said Matt Buckland, a dealer at CMC Markets.
Though the solvency of banks across Europe is less of an issue in the markets, their upcoming earnings are likely to be hit hard by the global economic downturn and that weighs on their share prices. Notable losers Thursday were BNP Paribas SA, down 2.5 percent and Barclays PLC, which was 5.6 percent lower.
One bright spot was the performance of Nestle SA, the world's biggest food and drink company, which saw its shares 5.2 percent in Zurich after it reported buoyant sales growth for the first nine months of the year.
Though the markets remain preoccupied with the general economic environment they continue to keep a close watch on interbank lending rates, which continue to fall, albeit relatively slowly.
Figures released Wednesday showed that the rate on three-month loans in dollars, known as the London Interbank Offered Rate, or Libor, fell by 0.29 percentage point, to 3.54 percent, while the so-called European Interbank Offered Rate for three-month euro-denominated loans dropped 0.03 percentage point to 4.936 percent, the lowest rate since June 5.
"Softer earnings and growth risks are dragging down equities, with government-central bank efforts to stabilize the money markets still bearing fruit with Libor rates easing further," said Stuart Bennett, a senior strategist at Calyon.
Abnormally high interbank lending rates have been the catalyst for the crisis in the financial markets over recent weeks, raising fears they would choke off credit to businesses and individuals.
Earlier in Asia, Japanese electronics powerhouse NEC Corp. plunged 8.5 percent after slashing its full-year earnings estimates Wednesday, blaming weaker demand for mobile phones and computer chips.
Japanese exporters were also battered by the surging yen against the dollar and euro. A stronger yen decreases the value of overseas profits when repatriated to Japan.
Mazda Motor Corp. plummeted 10.9 percent, Isuzu Motors Ltd. 9.6 percent, and Honda Motor Co. fell 6.6 percent. Game console maker Nintendo Co., which releases earnings Oct. 30, closed 8.65 percent lower.
Elsewhere Australia's key index pulled back more than 4 percent as slumping world commodity prices sent resource companies lower. Rio Tinto fell more than 14 percent while rival BHP Billiton sank more than 9 percent.
Oil rebounded modestly after plummeting more than $5 overnight to near 16-month lows. Sweet crude for December delivery rose $0.77 to $67.52 a barrel.
On the currency front, the dollar was little changed at 97.53 yen. In two months, the yen has gained more than 10 percent against the dollar.
The euro and the pound were both 0.1 percent lower at US1.2839 and US1.6257 respectively.
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AP Business Writer Jeremiah Marquez in Hong Kong and AP Writer Tomoko Hosaka in Tokyo contributed to this report.
