World stock markets mostly slid on Friday amid fresh strains for the global economy, while bank shares were in focus after Moody's downgraded some of the biggest names including HSBC.
Europe's main stock markets were lower approaching the half-way point after losses for equity indices in Asia and on Wall Street overnight in the wake of weak manufacturing data from China and Europe, traders said.
The US Federal Reserve's light-touch stimulus on Wednesday also weighed on share prices with concerns it would not be enough to boost the stuttering economy.
Spanish and Italian bonds came under renewed pressure.
Markets were looking ahead to a meeting of the top four eurozone countries due in Rome on Friday to tackle the relentless debt crisis with France, Italy and Spain expected to put pressure on Germany to accept new measures.
Data on Friday showed that the debt crisis had pushed business confidence in Germany, Europe's biggest economy, to the lowest level for more than two years.
"In a sense, Moody's downgrade of 15 major global banks was merely a sideshow," said Chris Beauchamp, a market analyst at IG Index trading group.
"The real story is a good deal more serious, as Germany is finally beginning to feel the pinch of the eurozone crisis."
Approaching midday in London, the benchmark FTSE 100 index dropped 0.89 percent to 5,516.29 points. Frankfurt's DAX 30 shed 0.95 percent to 6,282.37 points and in Paris the CAC 40 gave up 0.78 percent to 3,090.10.
But Madrid's IBEX 35 jumped 1.27 percent to 6,858.60 points after Spain announced late Thursday that its crisis-torn banks would need up to 62 billion euros ($78 billion) to survive a severe financial slump, far less than the maximum foreseen in a eurozone rescue deal.
In foreign exchange deals, the euro edged up to $1.2549 from $1.2543 late on Thursday in New York.
The health of 15 of the world's biggest financial institutions has been called into serious question after Moody's downgraded their credit ratings, citing risk exposure and the eurozone crisis.
Some of the biggest names in banking -- including Goldman Sachs, Barclays, Citigroup and Deutsche Bank -- saw their ratings slashed on Thursday after the close of US markets, spelling increased investor scrutiny and potentially higher borrowing costs for lenders.
In London, HSBC and Barclays shares were flat, while another downgraded bank -- Britain's state-rescued Royal Bank of Scotland lost 0.78 percent.
Deutsche Bank declined 0.68 percent, while in Paris shares in downgraded Credit Agricole jumped 1.0 percent.
In Madrid, Santander jumped 1.85 percent and BBVA gained 1.71 percent thanks to Spain's bailout announcement.
In Germany, it was revealed that the Ifo economic institute's closely watched business climate index fell to 105.3 points in June from 106.9 points in May.
It was the second month in a row that the index has fallen and brings the barometer to its lowest level since March 2010.
"The recent surge in uncertainty in the eurozone is impacting the German economy," said Ifo president Hans-Werner Sinn.
"While companies' assessments of their current business situation brightened slightly, they scaled back sharply their expectations for the next six months," Sinn said.