LONDON -- Markets fell sharply Thursday as investors fretted over whether Cyprus will be able to agree on a package of emergency measures to avoid bankruptcy.
The country's lawmakers are in a race against time to fashion a deal that will also get the blessing of potential creditors from Europe and the International Monetary Fund. The European Central Bank has warned it will end emergency support for Cyprus' banks on Monday if no bailout deal is approved by then.
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Cyprus needs to come up with 5.8 billion euros ($7.5 billion) on its own in order to secure 10 billion euros in rescue loans from international creditors. Without the money, it faces bankruptcy and a possible exit from the euro -- a chain of events that would hit financial markets hard as well as raising renewed questions over the future of Europe's single currency.
"Stocks have tumbled as Cypriot uncertainty continues," said David Madden, market analyst at IG.
In Europe, the FTSE 100 index of leading British shares was down 1.1 percent at 6,364 while Germany's DAX fell 1.3 percent to 7,896. The CAC-40 in France was 1.9 percent lower at 3,757.
European markets weren't help by disappointing economic figures for the 17 European Union countries that use the euro. The purchasing managers' index -- a gauge of business activity -- fell to 46.5 in March from 47.9 the previous month, indicating that the eurozone economy is likely to remain in recession in the first quarter of 2013. A reading below 50 indicates contraction.
The prevailing uncertainty over Cyprus as well as the bleak economic backdrop weighed on the euro, which was trading 0.4 percent lower at $1.2884 and near its lowest level against the dollar in 2013.
U.S. stocks were also pressure, with the Dow Jones industrial average down 0.6 percent at 14,424 and the broader S&P 500 index the same rate lower at 1,549. Solid weekly jobless claims and existing home sales figures did little to inspire buying.
Earlier in Asia, Japan's Nikkei 225 index surged 1.3 percent to 12,635.69, its highest close since September 2008. South Korea's Kospi slipped 0.4 percent to 1,950.82 while Hong Kong's Hang Seng ended 0.1 percent down at 22,225.88.
Oil prices drifted lower too with the benchmark New York rate down 62 cents to $92.88 per barrel.