Reports that the Biden administration will seek to nearly double the capital gains tax hit market sentiment on Friday, distracting investors from positive economic news.

Wall Street's main indices ended Thursday down nearly one per cent after the first reports broke of the possible hike that would cut into earnings made on selling stocks.

At the open on Friday, the Dow slid 0.2 per cent lower, but both the S&P 500 and Nasdaq Composite made modest gains.

"Investors did not respond kindly to this news and global stocks have pulled back with a return to risk-off moods today," said XTB analyst Walid Koudmani.

European stock markets fell despite bright survey data for the region, with sentiment hit by US tax hike fears after a subdued Asian session.

In afternoon trading, London stocks shed 0.6 per cent, while Paris was off 0.5 per cent and Frankfurt dropped 1.0 per cent.

"Indices are shrugging off better-than-expected PMI data and an improving picture in Europe, focusing on potential tax changes in the US instead," said analyst Sophie Griffiths at trading firm OANDA. Asian share prices struggled to find clear direction.

Eurozone economic recovery accelerated somewhat in April despite Covid restrictions, a key survey showed Friday, as business activity grew at its fastest pace since the summer thanks to a manufacturing boom.

IHS Markit's eurozone composite Purchasing Managers' Index (PMI), a key gauge of business activity, rose to 53.7 points in April from 53.2 in March, remaining above the 50-point level that indicates growth.

It marked a second straight month of expansion in business activity after four consecutive months of decline.Britain's composite PMI surged in April to stand at 60 on the back of the nation's easing Covid restrictions.

That marked the highest level since late 2013, and compared with 56.4 in March. However, European shares failed to win much traction from the news. "Stocks are on the red in Europe despite mounting evidence of the improving economic picture," concluded Griffiths.

Wall Street had tumbled Thursday following reports that US President Joe Biden's administration is considering a tax hike on high-end stock investors.

Washington is said to be developing a plan to slap new levies on wealthy investors, including a near doubling of the tax on stock transaction profits to 39.6 per cent for people earning more than $1m. Any tax plan faces a long process in Congress before becoming a reality, but analysts said the reports indicate hikes are very much in the mix in Washington.

Biden also called for an increase in corporate taxes to finance his $2t infrastructure package.

"Yesterday's news was a nettlesome reminder that the specter of higher tax rates of some kind coming to pass, whether they be corporate, capital gains, property, or personal, will be an ongoing headwind for the stock market," said Patrick O'Hare at Briefing.com.

While things may have calmed down overnight in New York, O'Hare said  "the heightened attention on raising the capital gains tax rate has been enough to keep market participants preoccupied with the thought that the stock market is due for a consolidation period.

"The Thursday news also sent jitters through digital currency markets, with Bitcoin dropping below $50,000 in Friday morning trade just days after clocking a record high above $63,000.

Oil prices dipped as analysts warned signs of a diplomatic rapprochement between the US and Iran were putting downward pressure on prices.