LONDON: Global stock markets slid on Wednesday, with the heaviest losses seen in Asia, as investor confidence in economic recovery waned despite positive economic data from around the world.

"Compared to last months' optimism, investors seem afraid of fear itself, more than anything else," said Daniel Roy, equities analyst at Newedge brokers.

"Across market players, it is generally accepted that a correction is due on equity markets" after strong recent gains, he added.

Tokyo's benchmark Nikkei-225 index slumped 2.37 percent to close at 10,280.46 points on Wednesday, hit by the double whammy of falling US stocks and a stronger yen, which is bad for exporters, dealers said.

Europe's main stock markets also dropped but losses were less severe. The FTSE 100 fell 0.22 percent to 4,809.30 points approaching midday in London, Frankfurt's DAX 30 lost 0.53 percent to 5,299.24 points and in Paris the CAC 40 shed 0.67 percent to 3,559.37.

The falls came despite signs that economies are on the long and bumpy path to recovery from the global downturn, as the United States, the eurozone and China posted manufacturing growth while Australia said GDP grew in the June quarter.

Investors instead took their cue from an overnight slump on Wall Street, where the Dow Jones Industrial Average dived 1.96 percent to finish at 9,310.60 points.

Figures released on Tuesday showing the US manufacturing sector grew in August after 18 monthly declines in a row was hailed by President Barack Obama as "a sign that we are on the path to economic recovery."

The Institute of Supply Management said its index of the factory sector, also known as the purchasing managers index, beat analyst expectations to jump to 52.9 percent from 48.9 percent in July. Any number above 50 indicates growth.

"The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July," said ISM survey chief Norbert Ore.

However it failed to sway sceptical investors waiting to see if such upbeat data would help buoy corporate earnings, dealers said.

The US results chimed with other manufacturing reports around the world.

A widely-watched index of manufacturing activity in the 16-nation eurozone hit a 14-month high in August, still indicating contraction but continuing a gradual rise from historic lows.

Meanwhile China's manufacturing activity expanded in August at its fastest pace in 16 months. In response, Shanghai shares rose 1.16 percent on Wednesday.

The data pointed to stabilisation in the Asian giant and a boost for the many countries that rely on Beijing for their exports.

However, China shares have been volatile in recent sessions amid fears that the government may curb lending, which in turn would crimp liquidity and stymie a regional recovery.

Australia posted economic growth of 0.6 percent in the June quarter, official figures showed, confirming its status as the best performer in the developed world as massive stimulus plans boosted domestic spending.

"When every other major advanced economy has fallen into technical recession, we have not," Treasurer Wayne Swan said.

However, Sydney's benchmark S&P/ASX200 index closed down 1.69 percent on Wednesday as worries about Wall Street's losses and the so-called "September effect" instead coloured sentiment.

"Welcome to September, historically the toughest month of the year for investors," said Fred Dickson, chief market strategist at DA Davidson & Co.

"We are seeing some pullback in the market as we begin September over the concern that the market has overextended itself," said Andy Douglass of PNC Bank.