European stock markets slid on Wednesday and the euro fell against the dollar as traders expected US President Barack Obama's re-election to be challenged quickly by a looming fiscal crisis, and the EU issued gloomy growth forecasts.
After rising in early exchanges as investors welcomed an end to the US political drama, equities and the European single currency headed south as attention switched to the challenging months ahead.
At the close of trading, London's FTSE 100 index of top companies had lost 1.58 percent to 5,791.63 points, Frankfurt's DAX 30 retreated 1.96 percent to 7,232.83 points and in Paris the CAC 40 shed 1.99 percent to 3,409.59.
Madrid's IBEX index lost 2.26 percent to 7,660.70 points as Spain's growth prospects grew darker.
In New York, US stock markets tumbled on expectations that Obama's re-election will set up a tough battle with Republicans over a feared "fiscal cliff".
Automatic US tax and spending measures totalling about $600 billion are scheduled for January 1 to curb a swollen US public deficit and debt if a compromise on graduated measures cannot be agreed between Obama and the US Congress.
In midday trades, the Dow Jones Industrial Average gave up 2.49 percent, the broad-based S&P 500 fell 2.46 percent and the Nasdaq Composite shed 2.56 percent.
"As we had anticipated, the focus has quickly moved on to the uncertainty over the 'fiscal cliff,' and perhaps back to the unsolved crisis in the euro-zone as well," noted Julian Jessop at Capital Economics.
Berenberg Bank economists Holger Schmieding and Rob Rood pointed to likely control by the Republican party of the US House of Representatives, noting that "continuing gridlock in Congress, as projected by the current incomplete results, is no surprise.
"But the election outcome will make it difficult to forge the required bipartisan compromises ahead of the looming fiscal cliff at the end of 2012," they said.
Obama also has to produce a long-term plan to deal with the US fiscal deficit, which the International Monetary Fund forecasts will reach 8.7 percent of output in 2013, the Berenberg economists added.
"If no action is taken in the next two months, automatic tax hikes and spending cuts will tighten the fiscal position by a huge 5.1 percent of GDP at the beginning of 2013.
"Without a compromise, the US will be heading for recession," they warned.
Meanwhile, analysts expected Obama's victory to spell status quo for the Federal Reserve's relaxed monetary policy.
"An Obama victory ensures the continuity of the US monetary policy, which is likely to be kept loose," SHK Financial strategist Daniel So told Dow Jones Newswires.
But after a brief rise versus the US currency, the euro fell to $1.2763 in late London deals, compared with $1.2814 late in New York on Tuesday.
The European single currency reversed direction as the European Commission slashed its eurozone economic growth forecast for next year to just 0.1 percent, six months after tipping a much stronger recovery of 1.0 percent.
Official data also revealed slumps in German and Spanish industrial output in September.
In Greece, lawmakers were to vote Wednesday on austerity measures needed to unlock international aid and stave off bankruptcy despite strikes and public anger against billions more euros in tax hikes and pension cuts.
The package includes 18.5 billion euros ($23.6 billion) in new spending cuts and other reforms by 2016.
Among corporate stocks, Munich Re shares closed with a loss of 0.20 percent at 127.35 euros in Frankfurt after the world's biggest reinsurer said it was raising its full-year profit forecast, despite the expected claims losses from megastorm Sandy that battered the United States last week.
"The result for the first three quarters is more than pleasing. Despite Hurricane Sandy, we are very optimistic of realising a profit in the region of 3.0 billion euros for 2012," said chief financial officer Joerg Schneider.
At the beginning of the year, Munich Re had envisaged a full-year profit of around 2.5 billion euros.
Asian stock markets closed mixed earlier in the day, while on the London Bullion Market, gold prices climbed to $1,715.25 an ounce from $1,691 on Tuesday.