European stocks slumped on Thursday as German shares extended losses after a key survey showed an unexpected drop in business sentiment in the country.

The pan-European index extended its losses as a selloff in German equities accelerated after the release of the Ifo index for August. The closely watched survey of the business climate in Europe's largest economy came in at 106.2, compared with 108.3 in July. Economists polled by The Wall Street Journal had expected a print of 108.5.

Germany's DAX 30 DAX, -0.88% fell by as much as 1.4% after the report, but since pared the loss to 0.9% at 10,529.59.

U.K. stocks pulled back Thursday, with losses for drugmakers and commodity producers leading the market's benchmark to a second straight decline.

The FTSE 100 UKX, -0.28% lost 0.3% to close at 6,816.90, ending off its intraday low.

U.S. stocks ended slightly lower Thursday, with investors reluctant to make big bets the day before a much-anticipated speech by Federal Reserve Chairwoman Janet Yellen that will be picked apart for clues to the central bank's next rate move.

The Dow Jones Industrial Average DJIA, -0.18% slid 33.07 points, or 0.2%, to close at 18,448.41.

The S&P 500 index SPX, -0.14% fell 2.97 points, or 0.1%, to close at 2,172.47, with the health-care sector leading the decline, while the Nasdaq Composite Index COMP, -0.11% shed 5.49 points, or 0.1%, to end at 5,212.20.

Asian stocks were steady on Friday with modest losses in some markets and gains in others reflecting nervousness before a keenly anticipated speech by U.S. Federal Reserve Chair Janet Yellen.

The Asia-Pacific benchmark is on track for a 0.25 percent loss for the week.

Japan's Nikkei .N225 extended losses to 0.7 percent, set for a weekly drop of 0.6 percent.

Chinese shares, however, were higher, with the CSI 300 index .CSI300 and the Shanghai Composite .SSEC each rising 0.4 percent. They're on track for declines of 1.2 percent and 0.8 percent respectively.

Hong Kong's Hang Seng was also higher, up 0.6 percent and set to finish the week flat.