Investor sentiment took a knock also as Chinese technology giant Huawei stepped up its legal battle to overturn US legislation barring American federal agencies from buying its products, as Beijing toughened its trade war stance.
"European markets are on shaky grounds... thanks to simmering trade tensions between the US and China," said City Index analyst Fiona Cincotta, as leading European and Asian indices shed between 1.0 and 2.0 percent.
"China has started making its move on two fronts, firstly threatening to constrict the supply of its rare earth minerals to the US, and secondly, Huawei has launched a legal case in US courts arguing that the country's decision to restrict the world's largest network equipment maker was illegal."
Asian equities slid Wednesday, tracking overnight losses on Wall Street as investors grew anxious about a possible economic slowdown in the absence of any progress in resolving the US-China trade spat.
In a sign of intensifying concern over economic growth, rates on the 10-year US Treasury bond on Tuesday had touched 2.261 percent, the lowest level since September 2017. Bond prices and yields move in opposite directions.
"With investors flocking to US 10-year Treasury bonds on Tuesday night -- yields are at a 20-month low -- the European markets resumed their fearful performance on Wednesday," said Spreadex analyst Connor Campbell.
"The catalyst for the latest round of losses was a thinly-veiled threat from China over its willingness to throw around its rare earth weight in its battle with the US."
European markets had already kicked lower on Tuesday on a brewing political fight between Brussels and Rome, with Italian debt concerns returning to the fore.
Back in Asia on Wednesday, a Chinese state media report suggested Beijing would restrict exports of rare earths, using the minerals as leverage in the trade dispute.
- China's 'secret weapon'? -
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Rare earths are a key component in electrical devices and any move to restrict their supply would have a devastating impact on manufacturers, with China producing more than 95 percent of the metals.
"Given that the materials are used in everything from iPhones to missile guidance systems to electric cars... the country may have found its not-so-secret weapon in the trade war," Campbell added.
Economists agree that the trade dispute between the world's top two economic superpowers will have grim implications for consumers, who will have to bear the costs of punitive tit-for-tat tariffs.
Although an index of US consumer confidence on Tuesday registered an unexpectedly strong jump for May, it was not enough to allay investor fears, as US stocks sank, sending major indices to their lowest levels in two months.
- Key figures around 1045 GMT -
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London - FTSE 100: DOWN 1.3 percent at 7,172.53
Frankfurt - DAX 30: DOWN 1.1 percent at 11,892.49
Paris - CAC 40: DOWN 1.6 percent at 5,227.35
EURO STOXX 50: DOWN 1.4 percent at 3,303.21
Tokyo - Nikkei 225: DOWN 1.2 percent at 21,003.37 (close)
Hong Kong - Hang Seng: DOWN 0.6 percent at 27,235.71 (close)
Shanghai - Composite: UP 0.2 percent at 2,914.70 (close)
New York - Dow: DOWN 0.9 percent at 25,347.77 (close)
Pound/dollar: DOWN at $1.2644 from $1.2653 at 2100 GMT
Euro/pound: UP at 88.23 pence from 88.20 pence
Euro/dollar: DOWN at $1.1154 from $1.1160
Dollar/yen: DOWN at 109.37 yen from 109.38 yen
Oil - Brent Crude: DOWN $1.35 at $68.76 per barrel
Oil - West Texas Intermediate: DOWN $1.20 at $57.94 per barrel