Frankfurt - A new grim warning from the US Federal Reserve about the outlook for the giant American economy triggered another share sell-off around the world with stocks in Europe slumping by about 3 per cent in early trading Thursday.

Europe's broad-based Dow Jones Stoxx 600 index had dropped 2.9 per cent to 2228.99 as the trading day got underway following steep falls across Asia and after stocks on Wall Street plummeted by more than 5 per cent on Wednesday.

The sell-off came in the wake of a bleak prediction from US Federal Reserve chief Ben Bernanke that the world's biggest economy will continue sliding through to the middle of next year amid worries about the risk of deflation as the economic contraction and falling oil prices undercut inflationary pressures.

By mid-morning oil prices had dropped 1.7 per cent to 53.16 dollars a barrel on the prospects of falling demand as the global economy slows. In July, oil prices had been heading towards 150 dollars a barrel.

The new warning about the US economic outlook came in the wake of data showing two of the world's leading economies - the 15-member eurozone and Japan - tipping into recession.

Despite new moves by national governments to launch economic stimulus packages to help their economies limp through the current crisis, dealers said investor sentiment was also hit by ongoing uncertainty about state aid for the embattled car industry.

Thursday's drop in shares brought to an end a brittle calm that had emerged across global bourses in recent weeks after fears about the impact of the US mortgage market crisis reached a climax following the implosion of the leading American investment house Lehman Bros in September.

By mid-morning, Europe's leading market in London had lost 1.4 per cent, while the leading indexes in Frankfurt and Paris had dropped almost 3 per cent.

Shares in Zurich were off 3.82 per cent and Europe's benchmark blue-chip Stoxx 50 was down about 3 per cent.

The fall across Europe followed a downbeat end to trading across leading Asian markets.

While stocks in Tokyo slumped 6.89 per cent, Seoul's market ended the day down 6.52 per cent.

At the same time, shares in Hong Kong fell more than 4 per cent and by 1.7 per cent in Shanghai. Stocks in India were off 3.77 per cent. (dpa)