Stock markets faltered Thursday following an early pre-Christmas rally that was fuelled by expectations the US Federal Reserve will slash interest rates next year as inflation cools in the world's biggest economy.
Asian indices struck a mixed note although Tokyo tumbled on troubling news from Japanese carmaker Toyota, whose share price tanked.
European equities slid, as London hit reverse one day after jumping on news of a sharper-than-expected slowdown in UK inflation, and with many traders away for the yuletide break.
Eyes are now on Friday's upcoming release of the personal consumption expenditures (PCE) price index, the Fed's preferred gauge of inflation, which could be key for its next meeting in January.
- 'Santa Rally?' -
"Investors abruptly slammed the brakes on the year-end Santa rally," said SPI Asset Management analyst Stephen Innes
New York's three main indices lost more than one percent apiece on Wednesday, with the Dow coming off five straight records.
US equities had driven higher since late October, following a nearly unbroken path as inflation moderated and the Federal Reserve flagged plans for 2024 interest rate cuts.
A stream of US data in recent weeks has shown inflation continues to slow and the jobs market is softening, while other economic indicators suggest the US central bank is on course to bring prices under control while averting a recession.
The latest figures on Wednesday showed US consumer confidence bouncing back more than forecast, while home sales came off a 13-year low.
The most recent Fed gathering ended with officials indicating they would cut about three times in 2024, sparking a buying frenzy in markets and forcing some policymakers to try to temper expectations.
Traders are now eagerly awaiting fresh US data on Friday, which is the last trading day before Christmas.
- 'Walking a tightrope' -
"A higher-than-expected core US inflation reading tomorrow could tip us back into fretting about rates being higher for longer," said AJ Bell investment director Russ Mould.
He added that any downgrade to the third-quarter US gross domestic product could also raise concerns about the health of the economy.
"A downturn would be unwelcome news for corporate earnings even if central banks move on rates as the market hopes. For now, stocks are walking a tightrope to a hoped-for soft landing for the economy," he said, using a term for avoiding recession.
Back in Tokyo, shares slumped after Toyota announced a recall of a million vehicles, and its subsidiary Daihatsu decided to suspend shipments of all models over rigged safety tests.
The news got worse for the world's biggest carmaker later in the day when it said it was recalling around a million Toyota and Lexus vehicles in the United States, citing concerns about their airbag systems.
- Key figures around 1100 GMT -
London - FTSE 100: DOWN 0.4 percent at 7,687.33 points
Paris - CAC 40: DOWN 0.5 percent at 7,549.60
Frankfurt - DAX: DOWN 0.5 percent at 16,646.24
EURO STOXX 50: DOWN 0.5 percent at 4,512.86
Tokyo - Nikkei 225: DOWN 1.6 percent at 33,140.47 (close)
Hong Kong - Hang Seng Index: FLAT at 16,621.13 (close)
Shanghai - Composite: UP 0.6 percent at 2,918.71 (close)
New York - Dow: DOWN 1.3 percent at 37,082.00 (close)
Euro/dollar: UP at $1.0943 from $1.0942 on Wednesday
Dollar/yen: DOWN at 143.05 yen from 143.57 yen
Pound/dollar: DOWN at $1.2628 from $1.2639
Euro/pound: UP at 86.65 pence from 86.57 pence
West Texas Intermediate: DOWN 0.3 percent at $73.97 per barrel
Brent North Sea crude: DOWN 0.4 percent at $79.41 per barrel