European Shares Sink Amid Global Economic Concerns

World stocks hit their lowest level in over a week on Thursday, dropping 1.5 percent from recent 8-month highs, and the euro fell sharply on concern about contractions in Chinese and German manufacturing.

The HSBC flash Purchasing Managers' Index, the earliest indicator of China's industrial activity, fell to 48.1 in March from February's four-month high of 49.6, with new orders sinking to a four-month low.

Germany, seen as the bright spot in the otherwise recession-mired euro zone, and France both reported an unexpected contraction in manufacturing activity.

Overall in the euro zone, Markit's Eurozone Composite PMI fell to 48.7 in March from 49.3 in February.

Anything below 50 is viewed as a contraction.

"Everyone was so focused on Greece and the debt crisis is still on everyone's mind, but attention is focusing back on to fundamentals," said DZ Bank rate strategist Michael Leister.

"The PMIs alone don't make for such a big story but they fit into the bigger picture risk-off theme that we're seeing."

MSCI's main world equity index fell 0.4 percent to its lowest in eight days, after hitting its highest level since August earlier in the week.

Recent comments by the U.S. Federal Reserve have cut expectations of further quantitative easing, or asset buying. with previous rounds of QE having supported risky assets.

European stocks dropped 1.3 percent to their lowest in 10 days and emerging stocks fell 0.4 percent to two-week lows.

"There is a concern, which I share, that we have a rather uneven recovery, with the euro zone periphery in particular rather weak and former growth engines like China also not seeing a pronounced recovery," Gerhard Schwarz, head of equity strategy at Baader Bank, said.

"I would not say it's a deep correction (in equities)... Markets are overbought and looking for the next catalyst."

The euro dropped 0.5 percent against the dollar to $1.3150 and over 1 percent against the yen to 108.95.

The dollar lost 0.7 percent to 82.80 yen although it gained 0.2 percent against a basket of major currencies.

Brent crude oil was down 0.9 percent at $123.34 a barrel.

Bund futures gained 66 ticks, however, drawing in some safe-haven demand.