LONDON -- Worries over the state of the global economy weighed on markets Wednesday as investors positioned themselves for the U.S. corporate earnings reporting season.
Alcoa kicked off the latest round with a warning that demand for aluminum was lower than anticipated largely because of a slowdown in China. That dominated market sentiment despite slightly better earnings from the company.
"Investors are in no mood to throw caution to the wind as the U.S. earnings season gets underway," said Mike McCudden, head of derivatives at Interactive Investor.
Alcoa's warning about global demand came as the International Monetary Fund lowered its global growth forecast for this year to 3.3 percent from the previous estimate of 3.5 percent. Its forecast for growth in 2013 is 3.6 percent, down from 3.9 percent three months ago and 4.1 percent in April. The IMF also reiterated its concerns over the crisis in the eurozone and warned that the recession in Spain was worse than it thought.
Global growth concerns have been one reason why market sentiment has been depressed so far this week. Analysts expect earnings for Standard & Poor's 500 companies to be lower than a year ago _ the first time that has happened in almost three years.
In Europe, the FTSE 100 index of leading British shares closed down 0.6 percent at 5,776.71 while Germany's DAX fell 0.4 percent to 7,205.23. The CAC-40 in France fell 0.5 percent to 3,365.87.
The main event among companies in Europe was the calling off of merger talks between aerospace and defense companies BAE Systems PLC and EADS NV. As had been widely predicted, political concerns put an end to the link-up in advance of a regulatory deadline. Shareholders appeared to breathe a sigh of relief, with EADS doing particularly well, rising 5.3 percent.
In the U.S., the Dow Jones industrial average was down 0.5 percent at 13,405 while the broader S&P 500 index fell 0.3 percent to 1,438.
Earlier in Asia, stocks posted losses, with the exception of mainland China, where shares rose on hopes that Chinese authorities were readying measures to help reverse the decline in growth in the world's second-largest economy.
The Shanghai Composite Index rose 0.2 percent to 2,119.94 while the smaller Shenzhen Composite Index added 1 percent to 880.37.
Elsewhere, Japan's Nikkei 225 index tumbled 2 percent to its lowest close in two months at 8,596.23. Hong Kong's Hang Seng fell 0.1 percent to 20,919.60. South Korea's Kospi dropped 1.6 percent to 1,948.22.
Currency markets were subdued with the euro up 0.1 percent at $1.2890 and the dollar flat against the Japanese yen at 78.28 yen.
In commodity markets, the benchmark contract for crude oil was up 87 cents at $93.26 per barrel in electronic trading on the New York Mercantile Exchange.