Brutal selling hit world stock markets Thursday as the arrest of a top Chinese executive revived US-China trade war worries, but the Dow trimmed its losses following a report that the Federal Reserve could soon pause interest rate hikes.

Bourses in Frankfurt, London and Paris all shed more than three percent after Canadian officials on Wednesday arrested an executive from Chinese telecom company Huawei at the urging of the United States, prompting worries of an all-out trade war.

Wall Street joined the selloff, also losing three percent, but got a boost at the end on expectations the Federal Reserve could soon pause its interest rate hikes. The Dow and S&P 500 ended the session only modestly lower, while the Nasdaq notched a moderate gain.

Doubts about the tariff truce agreed by US President Donald Trump and his Chinese counterpart Xi Jinping already were weighing on sentiment.

But worries deepened following the arrest of Huawei executive Meng Wanzhou in Canada for extradition to the United States in an investigation into suspected Iran sanctions violations by the telecom giant.

China expressed outrage, urging Canada and the US to "immediately correct the wrongdoing."

"The optimism regarding the trade skirmish with China didn't last long following Saturday's truce, and after yesterday's arrest of Huawei's CFO in Canada, the odds of a quick deal now seem to be slim," said Gorilla Trades strategist Ken Berman.

The China trade spat remains a source of uncertainty even as US executives and economists continue to describe solid economic conditions.

"We still have a strong American economy," JPMorgan Chase Chief Executive Jamie Dimon told CNBC. "It's still a trade skirmish, but people are pricing in, 'How bad can it get?'"

New US economic data Thursday showed solid growth continued in the services sector in November, while private-sector hiring declined somewhat during the month as firms struggle to find workers.

Analysts expect Friday's government jobs report to show the US added 189,000 jobs and the unemployment rate held steady at 3.7 percent.

- Relief from Fed? -

The Dow fell nearly 800 points during its session low before beginning to climb higher. Markets got a big positive lift in the final hour of trading with a Wall Street Journal report that said the Fed could adopt a wait-and-see attitude to future interest rate hikes following an expected increase at the December policy meeting.

A report that Federal Reserve Chair Jerome Powell, seen last month, could pause interest rate hikes helped the Dow cut its losses on Thursday / © AFP/File

Investors still broadly expect the Fed to hike on December 19, but the odds are now 69.8 percent, down from 82.7 percent a week ago, according to futures markets.

The shift follows more dovish statements in recent days the Fed, including from Fed Chair Jerome Powell, who Trump has attacked repeatedly for lifting interest rates.

Oil prices finished lower as members of the Organization of the Petroleum Exporting Countries debated a production cut in the wake of a big pullback in oil prices this fall.

Unusually, OPEC had scrapped a planned news conference on Thursday at which the members had largely been expected to announce a new reduction in output to stem the recent sharp drop in the price of crude.

"No, I am not confident," Saudi oil minister Khalid Al-Falih told reporters after coming out of a meeting of the Organization of Petroleum Exporting Countries in Vienna.

"We're still debating the distribution" of any possible cuts, he added.

- Key figures around 2130 GMT -

New York - Dow Jones: DOWN 0.3 percent at 24,947.67 (close)

New York - S&P 500: DOWN 0.2 percent at 2,695.95 (close)

New York - Nasdaq: UP 0.4 percent at 7,188.26 (close)

London - FTSE 100: DOWN 3.2 percent at 6,704.05 (close)

Frankfurt - DAX 30: DOWN 3.5 percent at 10,810.98 (close)

Paris - CAC 40: DOWN 3.3 percent at 4,780.46 (close)

EURO STOXX 50: DOWN 3.3 percent at 3,045.94 (close)

Tokyo - Nikkei 225: DOWN 1.9 percent at 21,501.62 (close)

Hong Kong - Hang Seng: DOWN 2.5 percent at 26,156.38 (close)

Shanghai - Composite: DOWN 1.7 percent at 2,605.18 (close)

Oil - West Texas Intermediate: DOWN $1.40 at $51.49 per barrel

Oil - Brent Crude: DOWN $1.50 at $60.33 per barrel

Euro/dollar: UP at $1.1381 from $1.1344 at 2200 GMT

Dollar/yen: DOWN at 112.69 yen from 113.19

Pound/dollar: UP at $1.2783 from $1.2734