Downside risks in Europe and an unexpected slowing in the US services sector has investors rethinking the outlook for a second day.
European Central Bank President Mario Draghi quashed hopes for relief in the form of lower borrowing costs by saying policy makers this week didn't discuss cutting interest rates. The central bank kept its key rate at 1 per cent, even as it issued a warning.
"The economic outlook continues to be subject to downside risks," Draghi told a news conference in Barcelona.
Across the Atlantic, the Institute for Supply Management reported that its services index dropped to 53.5 in April from 56 in March. Economists polled by Reuters expected a 55.5 reading.
"We're seeing some softness in the economy after a good start to the year," Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis, told Reuters. "We think it's a temporary cooling off and that the outlook is still favourable this year because of easy money policies around the world and declining inflation."
Separately, the Labor Department reported that new claims for jobless help fell by 27,000 to a seasonally adjusted 365,000. It was the biggest weekly fall in claims since early May last year and exceeded expectations for a fall to 380,000, according to Reuters.
All eyes now are focused on tomorrow's April payrolls report which may show employers added 160,000 new jobs, according to the median forecast in a Bloomberg survey of economists.
In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.65 per cent, the Standard & Poor's 500 Index fell 0.84 per cent and the Nasdaq Composite Index slid 1.22 per cent.
On the corporate front, Facebook may be about to detail the pricing for its initial offering of shares at the market's close today, the Wall Street Journal online says. The price may put a valuation on the company of between US$85 billion and US$95 billion.
In Europe, the Stoxx 600 Index eked out an advance of 0.1 per cent for the day.
Ahead of Draghi's comments, bond sales in France and Spain went well today.
Investors bought French 10-year bonds at an average yield of 2.96 per cent at today's auction, compared with 2.98 per cent on April 5, debt-agency data showed, according to Bloomberg. France today also sold debt due in 2017, 2021 and 2025, while Spain auctioned notes maturing in 2015 and 2017.
France's President Nicolas Sarkozy might lose his job to Socialist challenger Francois Hollande when the French vote in the second round of elections on May 6.