Equities on both sides of the Atlantic weakened at the start of the fourth-quarter earnings season in the US that is expected to show tepid growth in corporate profits.
Quarterly earnings are expected to increase by 2.7 per cent, according to Thomson Reuters data.
"People are concerned about earnings," Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York, told Reuters.
In afternoon trading in New York, the Dow Jones Industrial Average fell 0.66 per cent, while the Standard & Poor's 500 Index declined 0.58 per cent, and the Nasdaq Composite Index retreated 0.61 per cent.
Alcoa, scheduled to report after the market closes today, is expected to post the strongest annual earnings growth in three years as the price of the aluminum rebounds and after the company closed its most inefficient smelters, according to Bloomberg.
Meanwhile, American small business owners remain worried about the outlook.
The National Federation of Independent Business said its Small Business Optimism Index rose 0.5 to 88 last month. That's the second lowest reading since March 2010.
"The January survey results will be far more enlightening about how the sector views the deal-higher taxes and minimal spending cuts may not be a panacea," NFIB chief economist Bill Dunkelberg said in a statement.
"And let's not forget what is looming on the horizon: a debate over the debt limit and a regulatory avalanche of historic proportions about to spill out into the country."
In Europe, the Stoxx 600 Index finished the day with a 0.1 per cent decline from the previous close. National benchmark stock indexes in London and Frankfurt also closed lower, posting 0.2 per cent and 0.5 per cent drops respectively.
"We have to realize that economic data coming out of the euro zone is going to be very poor," Bob Parker, senior adviser at Credit Suisse Asset Management in London, told Bloomberg. "I would want to diversify in equities across the euro zone. Markets are going to be frustrating. We are going to see a lot of day-to-day volatility."
Indeed, unemployment in the euro zone climbed to a record in November, rising to 11.8 per cent from 11.7 per cent in October, according to Eurostat data released today.
A separate report showed that Germany exports dropped more than expected in November, another sign that Europe's engine economy is struggling under the strains of the ongoing sovereign debt crisis in the euro zone.
Even so, there was a bright spot as confidence in the single currency zone rose more than anticipated last month. An index of executive and consumer sentiment strengthened to 87 from 85.7 in November, according to the European Commission.
And an auction of Irish government drew solid demand.
"Decent demand for Irish bonds bodes well for other peripheral debt," Mohit Kumar, head of European fixed- income strategy at Deutsche Bank in London, told Bloomberg. "This is a very positive development. Ireland has been taking a number of positive steps that allow it to access the market again."
In other debt news, Bank of America is looking to sell collection rights on at least another US$100 billion of mortgages after announcing similar deals for more than US$300 billion on Monday, Reuters reported, citing two sources familiar with the situation.