European stocks fell 1.7 percent on Friday, losing ground for the third time in four sessions as a dip in metal prices prompted investors to book recent lofty gains on mining shares.
Oil prices also weighed on sentiment as they resumed their climb, fuelling worries over inflation and the outlook for company results.
The FTSEurofirst 300 index of top European shares closed 1.7 percent lower, at 1,322.22 points.
The index ended the week with a loss of 3.1 percent, its worst weekly performance since early March.
"The market is rattled by the daily oil price rise that has become almost unbearable. That's a real threat to growth and also a big issue for inflation," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.
"But that being said, the recent stock rally is not over, this week looks more like a healthy correction after weeks of strong gains, and there is no reason for the indexes to drop further next week."
Oil hit a record of $135.09 on Thursday before trimming gains.
But prices rose again on Friday resuming their climb as the dollar dipped and on nagging concerns about stagnating output in Russia and other producers outside OPEC.
Oil prices have climbed by around a third since the start of the year.
Mining stocks tumbled, with Rio Tinto down 5.6 percent, BHP Billiton down 4.7 percent and France's Eramet down 7.6 percent.
The DJ Stoxx Basic Resources index, down 4.3 percent on the day, is still up 9.8 percent in 2008, Europe's best performing sector this year.
Shares of automakers also got hammered by worries over high oil prices, with Volkswagen down 2.5 percent and Daimler down 2.1 percent.
Renault, also hit by a downbeat note from Deutsche Bank, lost 4.1 percent.
The FTSEurofirst 300 is down 12 percent so far in 2008, hit by fears of a U.S. recession and on worries over the impact of a meltdown in the U.S. subprime mortgage market that has forced many banks to write down assets and seek emergency capital increases.
But the index is up nearly 10 percent since reaching a low in mid-March as fears surrounding the crisis in the credit market eased after the bailout of Wall Street firm Bear Stearns .
"We're now getting back to normal as fears of systemic risks are disappearing, while other risks are emerging," said Vafa Ahmadi, Fund manager at CPR Asset Management, in Paris.
"Developed economies are sliding into stagflation, but the market prefers stagflation to a systemic crisis," he said.
Around Europe, Germany's DAX index lost 1.8 percent, UK's FTSE 100 index dropped 1.5 percent and France's CAC 40 shed 1.9 percent.
Shares in Airbus parent EADS lost 4.4 percent as traders cited worries over the airline industry after the spike in oil prices, as well as strength in the euro against the U.S. dollar.
"Airlines are in deep trouble and soon, they might have to reduce capacity," one trader says.
"Your clients are struggling big time, while your costs rise as the dollar remains weak...They are certainly not drinking champagne at EADS these days," one trader said.
Among the few stocks on the upside, Deutsche Postbank gained 2.8 percent.
A source familiar with the matter told Reuters the bank is in exploratory talks with rivals Allianz and Commerzbank about a three-way bank merger.
Allianz, Commerzbank and Postbank all declined to comment.