World stocks fell on Friday with European shares on track to mark their biggest quarterly loss since the collapse of Lehman Bros three years ago as European economic readings compounded pessimism over global growth.

The euro slipped, on course for its biggest monthly drop in nearly a year, weighed down by the lack of visible solution to the euro zone's deepening debt woes.

The boost to the euro generated by Germany's parliamentary approval for new powers to the European Financial Stability Facility (EFSF) proved fleeting after data showing German retail sales slumping at their fastest pace in more than four years in August.

German retail sales were disappointing, so things are pointing to a further economic slowdown ahead. On top of that, the sovereign debt issue is ongoing, said Valentin Marinov, currency strategist at Citi.

To see the euro rebound we have to see more steps taken toward extending the lending ability of the EFSF and more efforts to prop up growth.

Comments from German Economy Minister Philipp Roesler that the Bundestag had little appetite to allow the euro zone's bailout fund to be leveraged to help the bloc's stricken economies did little to lift the single currency, which last traded 0.5 percent lower against the dollar at $1.3526 having fallen to a day's low of $1.3486 earlier.

An unexpected rise in euro zone inflation for September is also moderating hopes that the European Central Bank would ease monetary policy to support weakening European demand.

The deepening economic gloom has prompted investors to slash bets on risky assets in the quarter to ending September.

The pan-European FTSEurofirst 300 index fell 1.7 percent on Friday, on course for its worst quarterly loss since the months following the collapse of Lehman Brothers three years ago.

Short-term, we still have the same prospects: the timing of a (likely) Greek default, the nature of it, how shared or otherwise; the uncertainty of whether the (second Greek bailout) package needs to be revisited, said Philip Isherwood, head of equity strategy, Europe and UK, at Evolution Securities.

The MSCI world equity index fell nearly 1 percent, having dropped more than 16 percent over the quarter, the biggest drop since the last three months of 2008.

Emerging equities have also had their worst quarter since 2008, down 23 percent between July-September.

Asian equities extended their worst monthly performance since the most volatile days of the global financial crisis in October 2008. Fears of a sharp property market correction in China sent the key Shanghai index to its lowest levels in 2-1/2 years while Hong Kong's Hang Seng Index tumbled 2.3 percent.

The retreat in riskier assets helped safe-haven German government bonds higher after five consecutive sessions of losses as investors rebalanced their portfolios on the last day of the month and quarter.

German 10-year government bond yields were down 8 basis points at 1.94 percent, tracking benchmark U.S. Treasury yields which were 5 bps lower at 1.96 percent.