LONDON – European shares closed lower Friday amid a global stocks sell-off on worries the U.S. auto industry may go bust after the Senate refused to grant it a $14 billion lifeline.

However, losses were not as sharp as earlier in the day as investors drew some hope from news the White House is considering diverting money from the Wall Street rescue fund to stave off bankruptcy filings among the automakers.

The FTSE 100 of leading British shares was down 2.5 percent at 4,280.35, while Germany’s DAX fell 2.2 percent to 4,663.37. The CAC-40 in France dropped 2.8 percent to 3,213.60.

In the US, the Dow Jones industrial average was 1.0 percent lower at 8,480.02 in early afternoon trading New York time, while the broader Standard & Poor’s 500 index was down 11.53 points, or 1.3 percent, at 862.06.

Stock markets recovered some of their losses after the Treasury Department said it stands ready to “prevent an imminent failure” of the auto companies.

But despite hopes that the White House may use some of the $700 billion financial bailout fund to help Detroit’s automakers, investors remained rattled by the state of the U.S. economy and the vulnerability of some of its biggest companies.

“The equity markets’ response to the stalling of the bailout for the U.S. auto sector late on Thursday provides further evidence (if any were needed) of the fragility of sentiment,” said Julian Jessop at Capital Economics.

He expects some sort of bailout of the automakers to be reached. “These firms are simply too important — economically and politically — to be allowed to disappear completely,” Jessop said.

The bankruptcy of any of the big American automakers would deal another blow to the world’s largest economy, which is sliding deeper and deeper into recession.

The Commerce Department said retail sales dropped 1.8 percent in November, the fifth straight monthly drop. The weakness was led by a 2.8 percent fall in auto sales, a decline that had been expected given that automakers already had reported that November was their worst sales month in more than 26 years.

It’s not just stock markets suffering in the wake of the failure of the Senate to pass the auto rescue deal. The dollar slumped overnight too, particularly against the yen.

The dollar fell to a low of 88.16 yen, its lowest level since Aug. 2, 1995 — before it recovered to trade above 91 yen.

That heaps more bad news on major Japanese exporters like Toyota and Sony — already reeling from waning global consumer demand — whose overseas income is eroded by an appreciating yen.

Toyota Motor Co. dived 10.1 percent, Nissan Motor Co. lost 11.5 percent and Sony Corp. fell 6 percent. South Korea’s Hyundai Motor Co. shed 9.3 percent and Kia Motors Corp. was off 9.1 percent.

The declines fueled the losses across Asian markets. Japan’s Nikkei 225 stock average ended down 484.68 points, or 5.6 percent, to 8,235.87. Hong Kong’s Hang Seng index slid 5.5 percent to 14,758.39.

Mainland China’s stock market fell as investors were discouraged by the lack of any major new initiatives to spur the economy following a top-level economic conference earlier in the week. The benchmark Shanghai Composite Index dropped 3.8 percent to 1,954.21.

Figures this week show that China’s economy is feeling the pinch of the global slowdown. For the first time in seven years, exports fell in November.

Oil prices retreated to below $45 a barrel Friday after rallying back above $47 on expectations of a big output cut from the OPEC oil cartel. Light, sweet crude for January delivery fell $3.43 to $44.55 a barrel in electronic trading on the New York Mercantile Exchange.

Meanwhile, the euro was 0.2 percent higher at $1.3349.

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AP business writers Pan Pylas in London, Stephen Wright in Bangkok and Kelly Olsen in Seoul contributed to this story.