European stock markets suffered sharp losses Friday on news US authorities had charged investment firm Goldman Sachs with fraud in the sale of a complex mortgage security similar to those blamed for the sub-prime mortgage debacle. London's benchmark FYSE 100 index fell 1.39 percent to close at 5,743.96 points while in Paris the CAC 40 gave up 1.94 percent to finish at 3,986.63.
The Frankfurt DAX lost 1.76 percent to close at 6,180.90 points. Elsewhere there were declines of 2.26 percent in Milan, 1.02 percent in Brussels, 2.29 percent in Madrid, 1.64 percent in Amsterdam and 1.06 percent on the Swiss Market Index.
On Wall Street the Dow Jones Industrial average had shed 1.20 percent to reach 11,010.88 by mid-day while the tech-heavy Nasdaq was down 1.53 percent at 2,477.13.
European market sentiment also took a knock as Greece, its cost of borrowing from private markets continuing to rise, moved closer to calling for a bailout. Airline stocks were under heavy pressure in the face of major operational disruptions and prospects for big losses because of the Icelandic volcanic ash cloud.
But the chief market mover late Friday was Goldman Sachs. The US Securities and Exchange Commission, in a civil suit, accused Goldman of "defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the US housing market was beginning to falter."
The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the so-called collateralized debt obligation (CDO) in 2007 at the height of the mortgage crisis that plunged the country into a brutal recession.
The SEC said Goldman failed to disclose to investors key information about the product, especially the role of a major hedge fund that had taken a speculative position against the investment.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, SEC's director of the enforcement division in a statement.
"Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," he said.
In Paris banks were the principal losers Friday, with Credit Agricole shedding 3.47 percent, BNP Paribas 3.79 percent and Societe Generale 2.78 percent.
Mining issues were hurt by a strengthening dollar, which drives up the cost of raw materials for holders of weaker currencies. Xstrata lost 4.37 percent and Rio Tinto 3.87 percent. In the airline sector, Air France-KLM fell 3.42 percent and German carrier Lufthansa 4.10 percent.
Asian stocks closed lower earlier Friday on fears over Greece's debt problems and dealers locked in profits from recent gains. Tokyo ended the day 1.52 percent lower, Shanghai lost 1.11 percent and Hong Kong dropped 1.32 percent.