A sharp fall on the Milan stock market hit European shares on Thursday, with uncertainty over this weekend's Italian elections pushing a key euro zone equity index to its lowest level since the start of 2013.
"Some institutional investors are starting to take profit ahead of the elections. There is a lot of uncertainty," one trader said.
The euro zone's blue-chip STOXX 50 index provisionally closed down 2.3 percent at 2,580.20 points, marking a fresh low for 2013 and sending it to its lowest close since ending at 2,575.25 points on Nov. 30.
The pan-European FTSEurofirst 300 Index fell 1.5 percent to 1,151.76 points - its worst finish since ending on 1,148.28 points on Feb. 7.
Italy's benchmark FTSE MIB was Europe's worst-performing stock market, falling 2.9 percent, on uncertainty over the outcome of the elections on Feb. 24-25.
Most investors expect a center-left government headed by Pier Luigi Bersani and backed by current prime minister Mario Monti to win and continue with reforms to tackle Italy's debt problems.
However, a resurgence by former leader Silvio Berlusconi has caused growing doubts over the outcome.
"If Berlusconi were to get more votes than currently forecast, and no government can be formed, it may provoke a market rout, with serious European contagion," said Integrated Asset Management head Emanuel Arbib.
Weak euro zone PMI (purchasing managers' index) data for manufacturing and services also dented sentiment.
"Equities have taken a sharp dip lower, exacerbated by weaker than expected flash PMI readings from France and Germany that fed into a weaker than expected compound euro zone reading," said Matt Basi, sales trader at CMC Markets.
The French composite figure for February was 42.3, the lowest it has been since March 2009. The February composite PMI figure for Germany was 52.7, down from 54.4 for January.
The number for the whole euro zone came in at 47.3 for February, lower than January's composite number of 48.6.
Jeff Taylor, head of European equities at Invesco Perpetual, said that despite the blip on Thursday, if one takes the longer-term view that the economy is on the road to recovery, plenty of growth opportunities exist.
"We have had a good rally from the lows, but valuations do not look extreme on an historical basis. Stocks yield around 4 percent. Forward price-to-earnings are below their historical range ... the market does not look extended," he said.
Shares in Europe were also pressed downwards by concerns the U.S. Federal Reserve may opt earlier-than-expected to withdraw the stimulus that fueled the recent equity rally.
Minutes from the Fed's meeting in January released on Wednesday showed policymakers were growing concerned about the impact of quantitative easing (QE3), suggesting it may look to taper off its $85 billion per month purchases earlier than forecast.