A further drop in US new jobless benefits claims failed to turn the tide, with London's FTSE 100 benchmark index of leading shares closing down 0.79 per cent to 5,845.65 points.
Frankfurt's DAX 30 slumped 1.27 per cent to fall back below the 7,000 point level and end the day at 6,981.26 points, while in Paris the CAC 40 shed 1.56 per cent to drop below the 4,000-point level and finish at 3,472.46 points.
The euro dropped to $1.3190 from $1.3213 late in New York on Wednesday.
"Growth concerns across the globe are finally taking their toll on equities as investors are doubtful the US alone can lead a global recovery," said Spreadex trader Jordan Lambert.
"Outside the US the economic picture seems really bleak as we have austerity cutting away at growth in Europe and China's manufacturing activity and resource demands continue a contracting trend," he added.
Eurozone private sector activity fell more sharply than expected in March with the composite purchasing managers' index (PMI), a key leading-indicator, dropping to 48.7 points.
A reading above 50 means expansion, while below 50 suggests contraction.
"The eurozone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession, with output now having fallen in both the final quarter of last year and the first quarter of 2012," said chief economist Chris Williamson at Markit, which compiles the PMI survey.
The downturn, however, is "very mild," with the PMI signalling a contraction of around 0.1 and 0.2 per cent.
A general strike in Portugal and data that showed Ireland tipping back into recession also clouded the waters.
Irish gross domestic product shrank 0.2 per cent in the fourth quarter after a contraction of 1.1 per cent in the third quarter, the Central Statistics Office said in a statement, placing Ireland back into a technical recession.
However European Central Bank chief Mario Draghi said the worst is over in the eurozone debt crisis.
"The worst is over, but risks remain," Draghi told the daily Bild, Germany's most widely-read newspaper.
In China, manufacturing activity fell to a four-month low in March, HSBC bank said on Thursday, adding fuel to concerns over slowing growth in the world's second largest economy.
HSBC's preliminary PMI fell to 48.1 in March from 49.6 in February, following a sharp slowdown in exports, the British banking giant said in a statement.
The Chinese data weighed heavily on the mining sector, as China is a huge consumer of raw materials.
Shares in Randgold Resources dove 12.59 per cent to 5,765 pence, although the Africa-focused miner was also hit by concerns that a military coup in Mali could disrupt its operations, traders said.
Fresnillo fell 6.68 per cent to 1,621 pence, Vedanta Resources dropped 4.81 per cent to 1,287 pence and steel group ArcelorMittal lost 4.27 per cent to 14.78 euros.
Asian stock markets earlier closed mixed as traders responded to a surprise trade surplus from Japan as well as the weak data out of China.
Tokyo ended with a gain of 0.40 per cent, while Shanghai fell 0.10 per cent.
Wall Street fell despite new claims for US unemployment benefits continuing to fall last week to a fresh four-year low.
The Dow Jones Industrial Average was down 0.51 percent to 13,057.83 points in midday trade. The broader S&P 500 fell 0.69 per cent to 1,393.25 points, while the tech-heavy Nasdaq slid 0.36 per cent to 3,064.12 points.
"Neither corporate news nor a multi-year low in weekly initial jobless claims have been able to meaningfully improve sentiment," said analysts at Briefing.com.
The US Labor Department said on Thursday that 348,000 initial jobless claims were filed in the week ending March 17, down from a revised 353,000 in the prior week.
The weekly claims data, though volatile, have suggested momentum in the labour market recovery.