European stocks slipped to their lowest close in six weeks on Wednesday, weighed by heavy losses in oil stocks, which tracked a sharp fall in the price of crude.
The pan-European FTSEurofirst 300 ended 1.3 percent lower at 1,311.79 points, a little up from the session's lows following a better-than-expected reading on the U.S. ISM Non-Manufacturing index.
Oil and gas stocks took the most points off the index, as BP slid 3.9 percent, Royal Dutch Shell lost 2.9 percent and Total fell 3.8 percent.
"The way oil and gas move is literally the way the market moves, because they are so heavily weighted," strategist Elin Ottosson at Cazenove said.
Oil prices were down more than $1.30 a barrel, adding to a $3 fall on Tuesday after Federal Reserve Chairman Ben Bernanke remarked that the weak dollar was adding to price pressures.
The comments disappointed those hoping for further rate cuts in the near future and strengthened the dollar.
Andreas Huerkamp, strategist at Commerzbank in Frankfurt, said he did not expect the Federal Reserve to cut rates below 2 percent in the coming quarters.
Drawing a contrast to the early 1990s, Huerkamp said that this time round, the yield on U.S. 10-year Treasuries did not leave much room for falling long-term bond yields, a factor that is supportive of equities.
"However, inflation may become a positive catalyst as from 1991 to 1993. U.S. inflation fell 250 basis points from 5.7 percent to 3.2 percent," he said.
"If oil and food prices started to stagnate, then headline inflation might fall back to levels of core inflation (2 percent in the U.S., 1.5 percent in Germany)," Huerkamp added.
Miners also declined, tracking base metal prices, which suffered from the strength in the U.S. dollar and from growing concerns over global economic growth and demand from China and the United States.
Rio Tinto shed 2 percent, BHP Billiton ended the day 1.6 percent lower, and Vedanta Resources lost 4.2 percent.
The fall in oil prices boosted airline stocks, however.
Deutsche Lufthansa gained 3.4 percent, British Airways jumped 5.9 percent, and Air France-KLM soared 6 percent.
The three airlines were the top gainers on Germany's DAX, Britain's FTSE-100 and France's CAC.
Writedown woes weighed on sentiment in banks for the better part of the day, and shares in Deutsche Bank closed 0.97 percent lower, Societe Generale fell 1.6 percent, and Credit Agricole lost 1.13 percent.
An upgrade of shares in Lehman Brothers at Merrill Lynch to "buy", however, helped bring about a partial recovery, with the DJStoxx 600 European banks index ending 0.8 percent lower after having fallen more than 2 percent earlier in the session.
Merrill Lynch said in a note that the recent share correction was overdone, given Lehman's access to the Fed primary dealer facility and liquidity.
Although the broker believed a capital hike at Lehman was likely, it added that this was already reflected in the share price.
Among losers, Bouygues lost 6.7 percent after Exane BNP Paribas lowered its recommendation on the French conglomerate to "neutral" from "outperform" following an in-line earnings report.
And among automotives, dismal U.S. sales figures weighed on the sector.
In addition, Societe Generale downgraded shares in Continental, Michelin and Peugeot, which lost between 0.7 and 4 percent.