Markets dropped Thursday after a surprise rate cut from China spooked investors into worrying that the downturn in the world's second-largest economy may be bigger than they had expected.

A warning from Mario Draghi, the president of the European Central Bank, that risks remained to the economy of the 17 countries that use the euro didn't help matters. The bank's rate-setting panel had earlier unanimously decided to cut the main interest rate to a record low of 0.75 percent in an effort to stimulate growth.

The day has been dominated by central banks. The People's Bank of China cut its main lending rate by 0.31 percentage points to 6 percent and reduced its deposit rate by a quarter of a percentage point to 3 percent. It said the moves should boost growth in the second half of year but analysts said it hinted at a deepening economic concern.

Mark Williams, chief Asia economist at Capital Economics, said the move by the Chinese central bank may indicate that policymakers have had a sneak preview of June figures and "not liked what they've seen."

The Chinese authorities may have wanted to accentuate the impact of their rate cut by doing it alongside others in Europe to encourage talk of a coordinated response to the slowdown in the global economy.

"Again, though, this might simply underline the seriousness of the downside risks," said Williams.

The move overshadowed developments in Europe, which were expected by the markets.

The Bank of England, at the same time as China's central bank, approved another 50 billion pounds ($78 billion) injection into the ailing British economy. Under the so-called quantitative easing program, the Bank purchases government bonds from banks, in the hope that they will use the money to lend to businesses and consumers. The new purchases are expected to take 4 months to complete.

The ECB also delivered on market expectations by cutting its main interest rate. Investors remain skeptical, however, as to whether it will be enough to turn around the eurozone economy, which appears headed for recession.

"It is clear that market sentiment is somewhat mixed, and that news from Europe rightly continues to carry a game changing amount of weight," said Simon Furlong, a trader at Spreadex.

In Europe, Germany's DAX was 1.2 percent lower at 6,487 while the CAC-40 in France fell 1.5 percent to 3,219. The FTSE 100 index of leading British shares was 0.2 percent lower at 5,672.

The euro was hit particularly hard, falling 1.2 percent to $1.2373.

In the U.S., the Dow Jones industrial average was down 0.6 percent a 12,870 while the broader S&P 500 index fell 0.6 percent to 1,366.

Developments around the world offset some encouraging news on the U.S. jobs front in the run-up to Friday's nonfarm payrolls data, which often set the market tone for a week or two after their release.

The ADP private payrolls firm said 176,000 jobs had been created in June. That was above expectations and has raised predictions about the gain to be reported in Friday's government data.

"Take the ADP results with a handful of coarse salt as it is well-known to throw many a curveball," said Jennifer Lee, an analyst at BMO Capital Markets. "But I would love to be wrong this time."

Earlier in Asia before China's rate cut, Japan's Nikkei 225 index fell 0.3 percent to 9,079.80 and Hong Kong's Hang Seng was up 0.4 percent to 19,792.02. South Korea's Kospi slipped 0.1 percent to 1,875.49. Australia's S&P/ASX 200 dropped 0.1 percent to 4,169.20. China's Shanghai Composite tumbled 1.2 percent to 2,201.35.

Oil prices dipped alongside stocks, with benchmark oil for August delivery down 61 cents at $87.05 a barrel in electronic trading on the New York Mercantile Exchange.