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Stocks slumped on Wall Street and in Europe, while US Treasuries rose, as Russia amassed troops near the border with Ukraine, prompting the US and Germany to sharpen their warnings to Vladimir Putin.
Ukraine's Crimea region is preparing for a referendum on Sunday that might see ballots cast in favour of joining Russia. Group of Seven leaders yesterday said they would disregard the outcome of the vote because it is illegal.
US Secretary of State John Kerry told a Senate committee that the US and Europe will take "very serious" measures if Russia annexes Crimea following the referendum.
"If there is no sign of any capacity to be able to move forward and resolve this issue there will be a very serious series of steps in Europe and here with respect to the options that are available to us," Kerry said.
Russia began military exercises near the border with Ukraine.
"We would not only see it, also as neighbours of Russia, as a threat. And it would not only change the European Union's relationship with Russia," German Chancellor Angela Merkel told the Bundestag. "This would also cause massive damage to Russia, economically and politically."
In afternoon trading in New York, the Dow Jones Industrial Average slumped 1.17 percent, the Standard & Poor's 500 Index dropped 0.94 percent, while the Nasdaq Composite Index sank 1.3 percent.
In Europe, the Stoxx 600 Index finished the day with a 1.1 percent slide from the previous close. The UK's FTSE 100 shed 1 percent, France's CAC 40 declined 1.3 percent, while Germany's DAX slumped 1.9 percent.
"Investors will be reluctant to take large positions before the weekend with the Crimea referendum," Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote in Neuchatel, Switzerland, told Bloomberg News. "Sanctions, military interventions will all weigh on markets."
The latest signs from the world's second-largest economy provided more cause for concern as data showed that growth in China's industrial output, investment and retail sales all slowed more than expected.
US Treasuries received a boost as a result.
"There's clearly demand for safe-haven assets out there," Larry Milstein, managing director in New York of government-debt trading at RW Pressprich told Bloomberg.
Meanwhile the latest US economic data provided reasons for optimism as spring arrives and slowly pushes away the remnants of the cooling factors over data of the recent months.
US retail sales rose 0.3 percent in February, according to the Commerce Department, which followed two straight months of declines. Initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 315,000 last week, according to the Labor Department.
"The economy seems to be rebounding from a winter-related slump," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, told Reuters. "We expect the Fed will stay the course with its exit strategy."
FOMC policy makers are scheduled to meet next week.