Shares in major world stock markets took another beating on Thursday, as investors digested a sharp slowdown in US economic growth.

The US index of leading shares, the Dow Jones Industrial Average, headed south from opening and continued its course with little restraint.

I was feeling reasonably good that we were making a bottom and now this has made me concerned

Philip Dow RBC Dain Rauscher

At the close of trading, it ended down 229.97 points, or 2.6%, at 8506.62, while the high-tech Nasdaq market finished 48.10 points lower at 1280.16.

Losses across the Atlantic in London accelerated sharply on the bank of the US gloom, with the FTSE closing almost 5% lower at 4,0452.

France's blue-chip Cac index also closed 5% lower, while Germany's Dax was down 2.5%.

"I was feeling reasonably good that we were making a bottom and now this has made me concerned," said Philip Dow, director of equity strategy at RBC Dain Rauscher.

"I really think that if you are not concerned about the economic reports then there might be something wrong with you."

Disappointing results from the world's largest oil company Exxon Mobil and sharp fall in US manufacturing added to the decline on Wall Street.

Economic blues

The UK left interest rates on hold at 4% on Thursday, followed later in the day by the European Central Bank, which stuck at 3.25% for the tenth straight month.

Economists have cited stock market turbulence - which can have the effect of making people feel less wealthy - as a key reason for not raising rates.

The market's basically afraid of a double-dip recession

Todd Clark Wells Fargo Securities

Aside from local factors, a key driver of stock markets remains the disappointment caused by US growth.

Figures showed that the performance between April and June would result in expansion of just 1.1% if continued for a full year.

The January-March quarter had produced an annualised rate of more than 5%, and the new numbers cast doubt on the chances of the US hitting the government's 3-3.5% target for the year as a whole.

"It's the third day of much weaker-than-expected economic data and the market has been able to shrug it off in the last couple of days, but today's the third strike and you're out," said Todd Clark, from brokerage Wells Fargo Securities.

"The market's basically afraid of a double-dip recession."

Cooling of growth

A slowing in US manufacturing activity was also contributing to worries on the markets.

The Institute for Supply Management's July index of manufacturing activity fell to 50.5 - its lowest level since January - from 56.2 in June.

Any reading above 50 indicates growth in the sector that makes up about one-fifth of the US economy.

Finally, the ongoing corporate scandals - underlined on Thursday by the arrest of two WorldCom executives - continued to spook, said traders.

Asian depression

In Asia, Tokyo's Nikkei 225 finished down almost 1% and Korea's Kospi off nearly 1.5%.

Hong Kong's Hang Seng, though, bucked the trend, finishing 0.35% higher.

But the gloomy response among investors in Asia's hi-tech stocks was inevitable, particularly in Japan, where demand remains deeply depressed and companies are relying on their traditional strength in exporting.

Sliding consumer confidence in the US has also caused concern for any export-led recovery in Japan.