Traders have been spooked after minutes from the US central bank's July meeting hinted that further increases in borrowing costs could lie ahead, as policymakers grapple with inflation.
Inflation in the United States currently stands at 3.2 percent but some decision-makers at the Fed have suggested its two-percent goal can only be achieved and maintained by pushing interest rates higher.
That has led to a re-evaluation of the outlook for monetary policy, with optimism that last month's rate hike could be the last giving way to bets on one more before the end of the year.
Expectations of another Fed hike have pushed 10-year Treasury yields -- a gauge of future rates -- close to their highest levels since the global financial crisis.
Fed chief Jerome Powell's speech at the annual Jackson Hole economic symposium in Wyoming, which begins next week, will be closely followed for clues about the bank's plans.
Shares on the London, Paris and Frankfurt exchanges were all in the red.
British retail sales fell more than expected in July, official data showed, with poor weather blamed.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said concerns over interest rates "continue to lead the narrative".
"There's also been a spike in the cost of UK government borrowing, which has risen to the highest level since the financial crisis, as those worries about higher interest rates caused yields on UK and US bonds to shoot up sharply," she said.
"At the same time, there are growing concerns over China's property crisis and a weakening economy," she added.
- Anxious eye on China -
Asian markets were well in the red, too, including Hong Kong, which was down for a sixth consecutive trading day.
Investors are also keeping an anxious eye on China, where authorities are struggling to get a grip on the economy as its recovery from Covid peters out.
And the property crisis is also back in the headlines.
On Thursday, Evergrande Group filed for bankruptcy protection in the United States, a measure that protects its US assets while it attempts to push through a restructuring.
That comes days after Country Garden said there were "major uncertainties in the redemption of corporate bonds", suggesting it could default on a bond payment next month.
There are now concerns about property firms that are backed by the government, with Bloomberg reporting that many are warning of widespread losses.
It said 18 of the 38 state-owned enterprise builders traded in Hong Kong and China posted preliminary losses in the first half of the year, compared with 11 that warned of full-year losses in 2022.
"China's property slowdown is already hurting all developers, including the large government-linked ones," said Zerlina Zeng of CreditSights Singapore.
"We do not expect the situation to materially improve in the second half."
- Key figures around 1030 GMT -
London - FTSE 100: DOWN 0.7 percent at 7,260.31
Frankfurt - DAX: DOWN 0.5 percent at 15,593.40
Paris - CAC 40: DOWN 0.7 percent at 7,142.95
EURO STOXX 50: DOWN 0.5 percent at 4,208.48
Tokyo - Nikkei 225: DOWN 0.6 percent at 31,450.76 (close)
Hong Kong - Hang Seng Index: DOWN 2.10 percent at 17,950.85 (close)
Shanghai - Composite: DOWN 1.0 percent at 3,131.95 (close)
New York - Dow: DOWN 0.8 percent at 34,474.83 (close)
Euro/dollar: DOWN at $1.0872 from $1.0878 on Thursday
Pound/dollar: DOWN at $1.2740 from $1.2745
Euro/pound: UP at 85.35 pence from 85.29 pence
Dollar/yen: DOWN at 145.46 from 145.79 yen
West Texas Intermediate: FLAT percent at $80.39 per barrel
Brent North Sea crude: DOWN 0.1 percent at $84.01 per barrel
dan-kjm/bp
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