In Europe, the FTSE 100 index of leading British shares closed down 89.37 points, or 1.7 percent, at 5,121.81 while Germany's DAX sank 124.55 points, or 2.1 percent, to 5,930.08. The CAC-40 in France was 110.72 points, or 3.1 percent, lower at 3,446.62.
On Wall Street, the Dow Jones industrial average dropped more than 300 points. All the major indexes were down more than 2 percent.
Those levels marked a big reversal from earlier, when sentiment was fairly buoyant as a run of strong U.S. economic data had stoked hopes about the monthly U.S. jobs data. In addition, payroll figures often set the tone for markets for the next week or two.
Theproved much softer than expected and investors worried about the pace of the U.S. economic recovery. Although the Labor Department reported that the number of nonfarm payrolls created in May was a ten-year high of 431,000, investors expected at least 510,000 new jobs, especially since May's figure was inflated by the hiring of 411,000 workers for the census.
That means job creation remains fairly tepid in the U.S. even though the recession officially ended last year.
"This is a good reality check for where the economy really is; conditions are improving, but the recovery is still not catching fire," said Paul Ashworth, senior U.S. economist at Capital Economics.
Friday's jobs disappointment comes at the end of a week when stocks have enjoyed some of their biggest gains this year, as trading was steered by something other than the European debt crisis.
The U.S. jobs data also affected currency markets - at times of risk aversion, the dollar often gets supported in its presumed status as a safe haven currency.
By mid-afternoon London time, the euro was down at $1.2011, after trading briefly below $1.20 for the first time since March 2006.
The jobs data also had a negative impact on oil prices as traders factored in a slower than anticipated U.S. economic recovery - benchmark crude for July delivery was down $2.05 at $72.56 a barrel in electronic trading on the New York Mercantile Exchange.
Further hurting sentiment in Europe were comments from the Hungarian government, which said its economy is in a "grave" situation. The comments raised fears among investors that the country may be hit by a Greek-style debt crisis and pushed towards default. The forint and local equity markets dropped sharply and borrowing costs jumped higher.
Elsewhere, investors are keeping a close eye on the meeting of the Group of 20 finance ministers and central bankers in South Korea, for any indications that splits have emerged about economic policy now that the global recession has ended.
Gareth Berry, an analyst at UBS, said fiscal consolidation and economic growth are likely to be the key subjects for the G-20 but that "talk of financial regulation could dampen any burgeoning risk sentiment for now."
Earlier in Asia, Japan's Nikkei 225 stock average fell 13 points, or 0.1 percent, to 9,901.19 amid news that Finance Minister Naoto Kan had been elected prime minister, replacing the deeply unpopular Yukio Hatoyama ahead of upper house elections in July.
In Hong Kong, the Hang Seng index shed 6.64, or less than 0.1 percent, to 19,780.07 while Australia's benchmark retreated 0.8 percent to 4,449.40. South Korea's Kospi advanced 0.1 percent to 1,664.13 and markets in Singapore, Thailand and the Philippines also gained.
China's Shanghai Composite Index closed flat at 2,553.59 amid concerns that rapid economic growth might slow if Europe's debt troubles hurt demand for exports.