European markets erased early morning gains to close sharply lower Thursday afternoon, as market sentiment soured and a global sell-off in risk assets resumed.
The pan-European Euro Stoxx 600 index closed down 1.75 percent provisionally, after a slightly higher start with markets in the region reopening after the Christmas holidays. Germany's DAX led the declines, down nearly 2.4 percent, and the Italian FTSE MIB slid 1.8 percent, as those markets missed out on heavy losses seen Monday when both were shut.
The Stoxx 600 is in correction territory and was around 17 percent off its most recent 52-week high as markets opened Thursday. The DAX is in bear market territory, around 22 percent off its most recent 52-week high. It's also on track for its worst month since January 2016 and its worst year since 2008.
A dramatic surge in U.S. stocks provided some relief to global markets overnight, with the Dow Jones Industrial Average gaining more than 1,000 points in Wednesday's trading session. However on Thursday, Wall Street traded sharply lower, giving back some of the strong gains from the previous day, amid renewed tensions between China and the United States.
Reuters reported, citing three sources familiar with the situation, that President Donald Trump is considering an executive order to ban U.S. companies from using equipment built by Chinese firms Huawei and ZTE.
Back in Europe, France's Vinci Airports announced it will buy a majority stake in London Gatwick for $3.7 billion, sending Vinci stocks 1 percent higher in early deals. The stock closed the day up just 0.14 percent.
In Italy, banking stocks were lower after Banca Carige's top investor blocked a vital 400 million euro share issue for the lender, Reuters reported.
—CNBC's Eustance Huang and Fred Imbert contributed to this article.