European stocks ended at intraday lows on Wednesday following a sharp drop in coal prices which weighed heavily on mining stocks, while a solid recovery amid banks placed a cap on losses.
The FTSEurofirst 300 index of top European shares provisionally closed 0.65 percent lower at 1,167.92 points, after clocking up gains of 1.2 percent earlier in the session.
The benchmark has now fallen on eight of the last 11 days.
"People continue to be nervous," said Thierry Lacraz, investment adviser at Pictet & Cie in Geneva, pointing to the current volatile trading environment, fears of further losses or capital increases across industry sectors and a soaring oil price.
A sharp decline in coal prices weighed in the last two hours of trading with market watchers pointing to a technical reaction following a 75 percent rally in the September 2008 futures contract for coal over the past three months.
Miners and steelmakers fell sharply with the DJStoxx European basic resources index shedding 5.2 percent, led lower by Antofagasta which fell 8 percent, and Rio Tinto and Anglo American, which fell 4.4 percent each.
ArcelorMittal and Voestalpine fell 6 percent, while ThyssenKrupp lost 4.5 percent.
Food retailers were also out of favor after Marks and Spencer shocked investors with a profit warning. Its shares nosedived 25 percent.
Peers Kingfisher and Next lost 4.8 and 8 percent respectively.
Also weighing on the index was U.S. data that showed private employers slashed 79,000 jobs in June while planned layoffs at U.S. firms rose nearly 50 percent above year ago levels, which could bode ill for Thursday's U.S. payroll data.
On the positive side, a boost in demand for aircraft lifted orders at U.S. factories by an unexpectedly large 0.6 percent in May.
Investors' focus now shifts towards the interest rate setting decision by the European Central Bank on Thursday.
Investors expect the central bank to take action against inflation and opt for an increase of 25 basis points.
Banks were the biggest advancers by weight after Deutsche Bank and UBS reassured investors that they did not need to raise further cash.
UBS and Deutsche Bank gained 1.6 percent and 3.3 percent respectively and a positive note from JP Morgan further boosted the sector where some of the biggest recent fallers led the rebound.
Natixis was up 4.4 percent, Credit Agricole rose 0.8 percent and Fortis added 2.4 percent.
Fears over more losses and capital increases across industries nonetheless are here to stay for the time being and set to ensure that volatile trade continues, according to Pictet's Lacraz.
"Investors fear that banks will need to recapitalize after the mid-year results and today we also had rumors that GM could need an increase," Lacraz said.
"It is important that investors are rediscovering the fact that capital increases can be very dilutive for them," he said.
Pointing to the case of France Telecom he also noted that investor concerns are starting to be heard.
"The pressure from shareholders has been taken into account by the management of France Telecom and they won't start dilutive acquisitions again where the synergies aren't really evident," he noted.
France Telekom shares closed 3.5 percent higher, with other telecoms such as BT, Portugal Telecom and KPN all up between 2.5-5.3 percent following a number of bullish broker notes over the past two sessions.
Other strong sectors included pharmaceuticals.
The DJStoxx 600 European Health index rallied 1.7 percent, with AstraZeneca jumping 4.8 percent after winning a U.S. patent battle over its second-biggest seller Seroquel, which according to Morgan Stanley accounts for some 25 percent of forecasted 2009 earnings per share.
The positive news read through to other pharma stocks such as GlaxoSmithKline, Sanofi-Aventis and Roche which all gained between 1 and 4 percent.
Solar stocks were also under pressure on the back of media reports that Spain could cut certain tariffs and lower a cap on annual installations more than expected when it renews the regulation that run out in September.
Solon slumped 11 percent with Q-Cells fell 8 percent and peer Solarworld down 6 percent, also weighed by talk of a share placing.