Labour has been consulting investors about closing a tax break on carried interest ahead of a wider budget announcement in October
Global equities turned lower on Thursday as U.S. manufacturing data dragged and financial stocks in Europe saw their biggest one-day rout since March 2023.
Treasury yields also fell on the soft economic data, as well as a rate cut in the UK and the prospect of policy easing in the United States.
MSCI's gauge of stocks across the globe fell 11.15 points, or 1.37%, to 803.01 by 1:13 p.m. ET (1713 GMT)
Oil futures gave back earlier gains, as global supply seemed largely unaffected by worries of a broadening Middle East crisis.
The Federal Reserve held interest rates steady on Wednesday but opened the door to a cut in September. The Bank of England stole a march on the U.S. central bank on Thursday by lowering borrowing costs by a quarter-point in a narrow 5-4 vote.
The U.S. Institute for Supply Management's (ISM) manufacturing PMI dropped to its lowest since November, below a key level that indicates contraction in a sector that accounts for more than 10% of the economy.
The data suggests the economy might be in worse shape than expected, said Robert Pavlik, senior portfolio manager at Dakota Wealth.
"And (Federal Reserve Chair) Powell's still on hold with rate cuts, so that's gotten them concerned."
On Wall Street, the Dow Jones Industrial Average fell 553.80 points, or 1.36%, to 40,288.99, the S&P 500 lost 76.79 points, or 1.39%, to 5,445.51 and the Nasdaq Composite lost 388.86 points, or 2.21%, to 17,210.54.
Tech giants Apple and Amazon.com will report earnings later on Thursday.
Europe's STOXX 600 index closed more than 1% lower with the banking sector seeing its largest one-day decline since March 2023.
"The fact that some heavyweights are cutting guidance does not bode well going forward and might well explain why European markets are underperforming," said Stephane Ekolo, equity strategist at TFS Derivatives.
"Disappointing set of results, slowing growth for industrials, Chinese consumers no longer there to rescue demand and a possible resurgence of inflation. You have a not so pleasant cocktail."
Britain's FTSE 100 bucked the trend.
"If you look at the headlines that (BoE Governor Andrew) Bailey produced: caution on cutting too quickly or by too much, it implies to me that they're looking at a steady quarterly pace of reductions," said Colin Asher, economist at Mizuho.
"I would say that makes a cut in the next meeting in September unlikely. The start of lower interest rates is underway, but reasonably gradually."
Emerging market stocks held onto gains, up 0.16% at 1,086.51. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.54% higher at 568.59.
Japan's Nikkei, however, tumbled 2.5% as a sharp jump in the yen clouded the outlook for exporters.
The Japanese yen rallied against the dollar to its strongest level since March, a day after the Bank of Japan raised interest rates for the second time in 17 years and signalled more tightening to come.
FED SIGNALS SEPTEMBER CUT
Eyes remained on the U.S. monetary policy outlook after Fed Chair Jerome Powell said policymakers had a "real discussion" about cutting at the July meeting.
The central bank also said the risks to employment were now on a par with those of rising prices.
"The statement was notable in that they removed the tightening bias and replaced it with a more neutral bias," said Jan von Gerich, chief analyst at Nordea.
"It's early but the fact we haven't really seen the rally continue suggests that markets may be trying to catch some breath before tomorrow's (U.S.) payrolls report."
The yield on benchmark U.S. 10-year notes fell 11.9 basis points to 3.986%, from 4.105% late on Wednesday. Yields move inversely to prices.
After falling 0.4% on Wednesday, the dollar index which measures the greenback against a basket of currencies including the yen and the euro, gained 0.33% to 104.39.
The euro fell 0.36% to $1.0786.
In commodity markets, U.S. crude lost 1.09% to $77.06 a barrel and Brent fell to $80.16 per barrel, down 0.84% on the day.
Spot gold was down 0.39% at $2,438.60 an ounce.
(Reporting by Chris Prentice, Samuel Indyk, Stella Qiu and Ankur Banerjee; Additional reporting by Ankika Biswas Editing by Chizu Nomiyama and Bernadette Baum, Kirsten Donovan)
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