London's FTSE 100 index fell 16.8 points, or 0.32%, to 5,315.5 on worries about the economy. Bonds rallied from earlier lows after the Bank of England cut interest rates by 25 basis points.
Among stocks on the move, Fund manager Amvescap was lower after Canada's CI Fund Management dropped a plan to pursue a hostile takeover offer, while Imperial Chemical rose to a three-year high on its report of strong second-quarter income.
Germany's DAX index fell 49.06 points, or 1.00%, to 4,874.06, despite that Germany factory orders unexpectedly rose 2.4% in June. Some investors were disappointed that the European Central Bank didn't cut interest rates.
Automakers DaimlerChrysler and BMW were both lower. Commerzbank rose to 3-year high as second-quarter net income beat analysts' expectations. Aixtron fell after the company cut its full-year sales forecast after it posted a second consecutive quarterly loss. Depfa Bank rose after Deutsche Bank raised its rating on stock to buy from hold. Epcos fell after the company posted a third-quarter loss. Linde rose on improved second-quarter earnings.
In Paris, the CAC 40 index lost 36.51 points, or 0.81%, to 4,458.97 on profit-taking, some disappointing earnings, and concern that higher oil prices will slow the economy.
Societe Generale was lower even though the bank reported that its second-quarter profit grew 18%. Thales rose after winning a $1.24 billion contract to build drones for the British Defense Ministry. Thomson fell after Goldman Sachs cut its earnings forecast for the company.
Asian markets also lost ground on Thursday. In Japan, the Nikkei index fell 98.49 points, or 0.82%, to 11,883.31. Stocks were hurt by political uncertainty as the House of Councillors delayed a vote on Prime Minister Junichiro Koizumi's plan to privatize Japan Post, which is the world's largest savings institution.
In Hong Kong, the Hang Seng index fell 6.96 points, or 0.05%, to 15,111.54. Trading was cautious ahead of the U.S. July labor report Friday and the FOMC meeting next week, according to Standard & Poor's MarketScope.