Worries that the U.S. economy is stalling and may be heading back into recession caused a severe slump in stock markets around the world on Friday.

With European indexes already shaken by a disagreement between the EU and Greece over how to plug a deficit gap, worse-than-expected U.S. jobs data drove investors to unload stocks.

The U.S. Labor Department announced that the world's largest economy created no new jobs in August, disappointing forecasts for a 93,000 increase. The figure was the worst in almost a year, leaving the unemployment rate unchanged at 9.1 percent.

Investors watch the jobs report as a key barometer of the health of the U.S. economy, which despite its recovery from the worst of the sub-prime mortgage crisis and the global financial meltdown has struggled to create new jobs.

"The stagnation in U.S. payroll employment is an ominous sign," said Paul Ashworth, economist at Capital Economics. "The broad message is that even if the U.S. economy doesn't start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still elevated unemployment rate lower."

Britain's FTSE 100 closed down 2.3 percent to 5,292.03 while Germany's DAX slumped 3.4 percent to 5,538.33 and France's CAC-40 shed 3.6 percent to 3,148.53.

Wall Street also slid _ the Dow industrials fell 1.4 percent to 11,336.08 and the S&P 500 lost 1.6 percent to 1,185.54.

In Europe, concerns about the debt crisis flared up again after international debt inspectors paused their review of Greece's finances.

An EU official, who declined to be named because of the sensitivity of the issue, said there were disagreements over the country's deficit 2011 and 2012 figures and how to make up for the budget shortfall.

Greek finance chief Evangelos Venizelos, however, denied that the pause it was due to a breakdown in talks.

The uncertainty, however, put extra pressure on European stock markets and the euro, which fell to $1.4214 from $1.4273 the day before.

In Asia, Japan's Nikkei 225 index, Asia's biggest market, ended a six-session winning streak, falling 1.2 percent to 8,950.74. Hong Kong's Hang Seng index declined 1.8 percent to 20,212.91.

Mainland China's Shanghai Composite Index fell 1.1 percent to 2,528.28 amid concerns over the potential impact of currency appreciation.

In Seoul, South Korea's Kospi shed 0.7 percent to 1,867.75, ending six consecutive gains. Markets in Australia, New Zealand, Thailand and Singapore also fell.

Benchmarks in the Philippines and India, however, bucked the losing trend to gain less than 1 percent each.

In currencies, the dollar was down slightly at 76.76 from 76.79 yen the day before.

New Japanese Prime Minister Yoshihiko Noda named Jun Azumi, a 49-year-old former journalist, to succeed him as finance minister Friday as he launched his Cabinet. Japan, the world's third-largest economy, is struggling with the effects of a currency that remains near an all-time high against the dollar.

"We expect Noda to maintain the links he formed with the BOJ as finance minister and continue with a policy framework that includes forex market intervention," Naohiko Baba, chief economist for Goldman Sachs in Tokyo, wrote in a report Friday, referring to the new prime minister's relationship with the Bank of Japan. The central bank carries out currency market intervention on behalf of the finance ministry.

Benchmark oil for October delivery was down $2.16 to $86.77 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 12 cents to settle at $88.93 per barrel on the Nymex on Thursday.

In London, Brent crude for October delivery was down 90 cents at $113.39 on the ICE Futures exchange.

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Kelly Olsen in Seoul, Yuri Kageyama in Tokyo and Fu Ting in Shanghai contributed to this report.