A 2.2 percent drop in sales in May suggests the US property market, which was the original epicenter of the global financial crisis, is not healing as quickly as many had hoped and that households remain cautious about the economic outlook.
After losses in Asia, Britain's FTSE 100 fell 0.5 percent to 5,221.78 and Germany's DAX lost 0.4 percent to 6,247.25.
France's CAC-40 shed 0.6 percent to 3,683.25.
Wall Street was expected to recover only a fraction of the previous day's losses at the open later. Dow futures were up 0.3 percent at 10,264 after the index slumped 1.4 percent on Tuesday. Standard and amp; Poor's 500 futures were up 0.1 percent at 1,091.80.
Besides the weak US data, sentiment in Europe was hurt by a report showing economic activity slowed in June. The The eurozone's Purchasing Managers' Index, a survey of professionals' views in various sectors, edged down for both manufacturing and services.
It "is another sign that the announced austerity measures may be starting to take a toll," said Ben May, European economist at Capital Economics.
Spending cuts across Europe — Britain was the latest major nation to unveil some of the sharpest austerity measures in decades in an emergency budget on Tuesday — have raised worries about growth.
The push for austerity started in countries with urgent debt problems, such as Greece, extending to others like Spain, and is now being embraced by the region's biggest and most important economies, such as Germany, France and Britain.
Because of this, "the recovery is likely to lose momentum in the latter half of the year," said May.
Bank stocks, meanwhile, were hit in Europe after Britain, France and Germany all committed to imposing a levy on banks. The measure, meant to shielf taxpayers from the cost of solving financial crises, would tax the banks according to the size of the balance sheets.
Barclays shares were down 1.5 percent, BNP Paribas fell 1.3 percent and Deutsche Bank 1.5 percent.
Looking ahead, investors will be watching a rate decision by the Federal Reserve. While the US central bank is widely expected to leave rates unchanged, its statement will be parsed for hints of when it expects to start tightening monetary policy and its outlook for growth and inflation.
In Asia, investors worried about the US data Japan's benchmark Nikkei 225 stock index dived 189.19 points, or 1.9 percent, to 9,923.70 and South Korea's Kospi shed 0.3 percent to 1,725.82. Australia's S and amp;P/ASX 200 fell 1.6 percent at 4,486.10.
Hong Kong's Hang Seng reversed course late in the session, gaining 0.2 percent to 20,856.61 while the Shanghai Composite Index ended off 0.7 percent at 2,569.87.
Benchmarks in Singapore and Taiwan fell.
In currencies, the dollar slipped to 90.39 yen from 90.47 yen in New York late Tuesday. The euro climbed to $1.2280 from $1.2262.
Benchmark crude for August delivery was down 46 cents at $77.39 a barrel in electronic trading on the New York Mercantile Exchange.
