Equities on Wall Street and in Europe fell as the Bank of Japan's decision to keep its monetary policy program unchanged disappointed those who had hoped for extra measures and underpinned concern the US Federal Reserve might taper its stimulus.
In late afternoon trading in New York, the Dow Jones Industrial Average shed 0.5 per cent, the Standard & Poor's 500 Index dropped 0.81 per cent and the Nasdaq Composite fell 0.85 per cent.
"I think starting to take central bank stimulus off the table, or at least saying we're at the limit, will create volatility in the market, but it's a good thing because some economic statistics are saying we're getting back to normal," Doug Cote, chief market strategist at ING US Investment Management in New York, told Reuters.
The Federal Open Market Committee meets next week, gathering for the first time since Fed chief Ben Bernanke last month suggested it might ease its monthly pace of bond-buying.
The Japanese yen rallied, up as much as 3.2 per cent against the greenback, after Bank of Japan Governor Haruhiko Kuroda refrained from expanding a lending program.
"Markets hoped we'd see a little more supportive rhetoric in terms of the policy backdrop from Kuroda," Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, told Bloomberg.
There are signs of improvement for Japan, the world's third-largest economy.
"Japan's economy has been picking up," the Bank of Japan said in a statement. "Japan's economy is expected to return to a moderate recovery path, mainly against the background that domestic demand increases its resilience due to the effects of monetary easing as well as various economic measures, and that growth rates of overseas economies gradually pick up, albeit moderately."
In Europe, the benchmark Stoxx 600 Index finished the day with a 1.2 per cent decline from the previous close. The UK's FTSE 100 sank 0.9 per cent, while Germany's DAX declined 0.9 per cent and France's CAC 40 weakened 1.4 per cent.
Commodities including gold and oil weakened too on the prospect of a downgrade in quantitative easing.
Stocks in Greece dropped after the government's failure to draw bids for Depa. The sale of the government's gas monopoly is crucial in helping Greece meet the conditions of its financial bailout by the European Union and the International Monetary Fund.
Greek Prime Minister Antonis Samaras said he expects a new effort to find a buyer will be successful.
"This is a competition that will restart very soon and will succeed," Samaras said after meeting with Luxembourg Prime Minister Jean-Claude Juncker,
Bloomberg reported. "I believe it will succeed because the climate has changed for the country."
Shares of yoga-clothing retailer Lululemon plunged in New York, last down 17 per cent. The company said yesterday that CEO Christine Day will leave as soon as a successor is found. She'll be the second top executive to go this year.