European stock markets suffered sharp sell-offs overnight on news of greater-than-expected job losses in the United States that dampened prospects for a smooth recovery in the world's largest economy.

The London FTSE 100 index fell 2.45 per cent to close at 4,234.27 points while in Paris the CAC 40 lost 3.12 per cent to end the session at 3116.41. The Frankfurt Dax plummeted 3.81 per cent to 4718.49.

Elsewhere there were declines of 2.65 per cent in Milan, 2.51 per cent on the Swiss Market Index, 2.92 per cent in Amsterdam and 1.73 per cent in Brussels.

Share prices also wilted on Wall Street where at mid-day the Dow Jones Industrial Average had fallen 1.93 per cent to 8339.61. The tech-heavy Nasdaq index was down 2.37 per cent at 1801.94.

Trading opened on a sour note ahead of a long weekend after the Labour Department reported that US employers shed 467,000 jobs in June, pushing the unemployment rate to a fresh 26-year high of 9.5 per cent.

Analysts had expected a smaller number of 365,000 job losses, but a higher unemployment rate of 9.6 per cent. The jobless rate in May was 9.4 per cent.

"The June payroll report presents lousy economic news in virtually every respect," said Patrick O'Hare of Briefing.com.

"It is so bad that it could undermine hopes that an economic rebound is not too far away simply because other economic series have showed a slowing rate of decline," he said.

The monthly labour report is one of the best indicators of economic momentum. President Barack Obama warned last month ago that "it's pretty clear now that unemployment will end up going over 10 per cent" and said it would take time for an economic recovery to translate into job growth.

The report is "doing little to soothe concerns on Wall Street that the road to an economic recovery may be bumpy and longer than the recent rally in equities in second quarter had suggested," analysts at Charles Schwab & Co said in a note to clients.

Wall Street will be closed on Friday ahead of the July 4th weekend.

In Paris, fund manager Bertrand Lamielle of BCapital, a unit of BNP Paribas bank, noted that "from March to May (when stock exchanges were rising) the markets were supported by confidence indicators.

"Today they want something concrete. Whenever the (macroeconomic) figures are disappointing, prices suffer."

The French auto sector was particularly hard hit on Thursday. Peugeot fell 5.42 per cent to 18.05 euros while rival Renault fell 4.80 per cent to close at 25.55 euros.

In the mining sector, likewise vulnerable to developments in the broader economy, ArcelorMittal gave up 4.76 per cent to finish at 22.79 euros while Eramet lost 5.76 per cent and closed at 185 euros.

In Frankfurt flag carrier Lufthansa fell 2.79 per cent to 8.71 euros. The European Commission on Wednesday said it would open an investigation into Lufthansa's plans to acquire Austrian Airlines.

Analysts say the probe threatens the deal since Lufthansa could pull out if there is no approval by July 31.

Siemens meanwhile shed 5.34 per cent to close at 47.50 euros following the announcement of an agreement with the World Bank to fight corruption.

Asian markets were mixed on Thursday ahead of the US jobs data, while another strong performance in Shanghai raised fears its rally will run out of steam.

Shanghai closed up 1.73 per cent, its highest point in over a year, raising fears that the already hot market was due a correction.

Tokyo edged down 0.64 per cent as investors turned cautious while Hong Kong lost 1.09 per cent on a lack of firm buying signals.

AFP