European equities followed Asian stocks lower Thursday as investors fretting about the global growth outlook cut exposure to riskier assets, while the Swiss franc fell on talk the central bank was intervening in the forwards market.
Nagging worries about the U.S. economy and dim prospects of a quick fix for the euro zone's debt crisis prompted investors to lock in profits following this week's rally in European stocks to one-week highs.
Adding to the glum growth picture, Morgan Stanley cut its forecast for global growth, citing "recent policy errors" in the United States and Europe, plus prospects of further fiscal tightening in 2012.
European stocks fell 1.2 percent, giving up the previous session's gains.
"At the start of the week, we were expecting a selloff and it hadn't materialized, with people selectively putting money into a few stocks keeping the froth alive, and so I think it is overdue," the head of institutional trading at a UK-based investment bank said.
MSCI's world equity index fell 0.8 percent, while emerging stocks lost 1.34 percent.
Brent crude oil slipped 0.4 percent to $110.16 a barrel.
The Swiss franc fell against the euro and the dollar with traders saying the central bank was intervening in the forwards market in its bid to curb the currency's strength.
The Swiss National Bank spokesman said Thursday: "We're not commenting on that."
The plight of the Swiss franc is part of a larger battle over Europe's fiscal crisis, with the Swiss currency a beneficiary of investors seeking safety in a currency other than the euro.
"They (the SNB) have been in the fx swap market," said Chris Walker, currency strategist at UBS. "But we think the euro/Swiss franc will still fall back toward parity."
"The dollar is also being preferred as there are reports of funding stress and as a loss of risk appetite sees investors make a scramble for the dollar."
The euro last traded at 1.1462 francs, down from Wednesday's peak around 1.1554 while the dollar stood at 0.7961 francs, still below a two-week high on Wednesday around 0.8011.
The retreat in equities kept safe-haven government bonds well-bid, with German Bund futures rising as much as 80 ticks to a fresh year-high of 134.72.
(Additional reporting by David Brett; Editing by Catherine Evans)