European shares closed lower on Thursday, tracking the downward trend in U.S. stocks as the budget deadlock in Washington continued for a third day.
The pan-European FTSEurofirst 300 Index provisionally closed down 0.5 percent at 1,241.52 points, while the FTSE 100 remained positive due to shares of heavyweight stock BP rising 4.85 percent after a U.S. court decision potentially spared the oil company billions of dollars of extra costs over the 2010 Gulf of Mexico oil spill.
A meeting between President Obama and Congressional leaders failed to yield a solution on Wednesday. Speaking to CNBC, President Obama said "this time I think Wall Street should be concerned," about the current impasse and the forthcoming battle over raising the country's debt ceiling before October 17 in order to avoid a default. "When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble," Obama said.
In a speech on Thursday, Obama said accused "extremist" Republicans of playing games with the livelihood of Americans.
U.S. stocks were lower on Wall Street, responding to Obama's comments as well as relatively flat jobless claims data. The Dow was flirting with the psychologically-important 15,000 mark, as investors grew more worried over the impasse in Washington. The Dow Jones Industrial Average tumbled more than 150 points.
(Read more: Markets brace for prospect of lengthy US shutdown)
Meanwhile in Italy, Prime Minister Enrico Letta won a vote of confidence on Wednesday after a dramatic u-turn by rival politician, Silvio Berlusconi.
With reports that up to 40 members of his party were ready to support Letta in the vote, Berlusconi – who had ordered his ministers within the coalition government headed by Letta to resign at the weekend – changed his tone and supported the beleaguered prime minister in the vote.
In other news, the European Central Bank (ECB) kept its main interest rate unchanged at a record low of 0.5 percent on Wednesday.
On the data front, euro zone retail data came in much better than expected on Thursday morning, showing a 0.7 percent rise in August compared with estimates of 0.2 percent. Euro zone services purchasing manager's index (PMI) data, a measure of business activity, rose slightly showing an uptick to 52.2 in September, better than August's 50.7 figure and just above a previous estimate.
In stocks news, shares of Finmeccanica rose 2.97 percent with reports this week saying that the defense group is stepping up its efforts to sell its power unit.
Shares of French defense Thales firm climbed 1.21 percent after it announced ambitious 10-year targets for revenues.
Shares of Schneider Electric fell 3.17 percent after Exane downgraded its stock to a "neutral" from an "outperform".
Shares of glass and plastic products maker Gerresheimer lost 2.03 percent by after Credit Suisse cut its outlook o the firm to a "neutral".
Tesco rebounded 2 percent after Wednesday's report of a plunge in profits prompted big falls in that day's session.
Follow us on Twitter: