Euro zone equities suffered their worst session in two months on Wednesday, as violent anti-austerity protests in Greece and Spain underscored the hurdles the bloc faces on its road out of recession and financial crisis.
Financials were the top fallers, as investors locked in profits on strong summer gains on expectations of central bank stimulus. Sentiment for the sector was further soured by vocal disagreements among euro zone member countries on how to recapitalize struggling banks.
A fresh batch of weak data and gloomy corporate reports from across the globe weighed on sectors most sensitive to the economic cycle, like autos and basic resources.
The Euro STOXX 50 index of euro zone blue chips closed down 2.4 percent at 2,505.87 points , in its biggest one-day drop since early August.
The pan-European FTSEurofirst 300 fell 1.7 percent at 1,100.98 points.
"At the end of the day there are still very poor figures and perspectives inside the euro zone," said Benoit Peloille, investment strategist at Natixis. "We have a market that has clearly rebounded, and you have some room for a correction, but we think it's not more than that."
Spain's Ibex was the region's worst performing index, dropped nearly 4 percent.
Meanwhile, the 10-year Spanish debt rose 23 basis points to a yield of 6 percent at a bond auction. In Germany, a sale of 10-year Bunds was technically uncovered with only 3.19 billion euros of the targeted 5 billion sold. The average yield was 1.52 percent.
Public pressure also increased in Greece, with two of the largest public and private sector unions holding a 24-hour strike against austerity on Wednesday.
Investors are nervous as proposed solutions to the region’s crisis continue to elicit mixed responses from euro zone leaders. Bank aid, banking union and bond-buying plans have all met with resistance from different quarters.
In earnings, Lloyd's of London , the U.K. group of insurers, reported an interim profit of 1.53 billion pounds for the first six months of the year, the highest interim profit it has posted for five years. Insurers remained pressured however by investor concerns about costs from recent flooding in the UK.
In stocks news, cyclicals like autos and banks were the main losers on European indexes.
RBS , Credit Agricole, Deustche Bank and Credit Suisse all traded sharply lower.
The London Stock Exchange and broker ICAP both reported a poor summer of trading on Wednesday, and both stocks fell steeply.
In Switzerland, retail company Dufrey saw its shares drop down 4.23 percent after UBS changed its outlook on the firm to neutral.