The FTSE 100 index of leading British shares was down 68.07 points, or 1.6 percent, at 4,140.48, while Germany's DAX was 34.09 points, or 0.7 percent, lower at 4,545.38. The CAC-40 in France was down 40.76 points, or 1.3 percent, at 3,176.64.
Financial stocks were being beaten down once again following Citigroup Inc.'s announcement of massive job cuts earlier in the week, with BNP Paribas SA, Barclays PLC, Commerzbank SA and Deutsche Bank AG all sharply lower. However, potential merger partners HBOS PLC and Lloyds TSB PLC were higher as shareholders gathered to approve the tie-up.
Earlier, Japan's benchmark Nikkei 225 average fell 55 points, or 0.7 percent, to 8,273.22 as investors digested a 64 percent slump in first-half earnings at the country's biggest bank, Mitsubishi UFJ Financial Group Inc.
Those concerns about the global economic slowdown have more than offset any relief that U.S. stocks ended higher Tuesday. The Dow Jones Industrial average closed up 151.17 points, or 1.8 percent, at 8,424.75 after U.S. computer maker Hewlett-Packard Co. said it is weathering the current economic climate better than anticipated.
A large chunk of those Wall Street gains are expected to be erased later. Dow futures were down 111 points, or 1.3 percent, to 8,386, while Standard & Poor's 500 futures were down 13.6 points, or 1.6 percent, to 853.5.
Sentiment in the U.S. is being dented by the uncertainty about the future of Detroit's Big Three automakers, who begged Congress on Tuesday for a $25 billion lifeline to stay afloat. But the rescue plan appeared stalled, opposed by Republicans and with the Bush administration unwilling.
Moreover, there are fears that the U.S. economy may soon start to exhibit deflationary symptoms. Clues to that could emerge later with the release of October inflation data.
Analysts surveyed by Thomson Reuters are looking for retail prices to decline by 0.5 percent in October, reflecting a big drop in gasoline and other energy costs.
"If the recent collapse in global inflation rates is anything to go by, then there is the possibility that today's U.S. CPI report may serve only to compound talk that a bout of deflation, globally, is not an unrealistic prospect — a situation hardly conducive to greater risk-taking behavior," said Neil Mellor, an analyst at Bank of New York Mellon.
Minutes to the meeting showed that the nine-member panel considered slashing interest rates by "possibly in excess of 200 basis points" or more than 2 percentage points to make sure that inflation did not undershoot the 2.0 percent inflation target over the medium-term.
Though they opted instead for a 1.50 percentage point cut in the benchmark rate to 3.00 percent, its lowest in 54 years, the minutes have paved the way for another sharp interest rate reduction in December at the next meeting.
China bucked the trend with the Shanghai Composite Index surging 6.1 percent to 2,017.47 as market heavyweight Petrochina rallied on expectations the government will allow fuel prices to be hiked next month.
Pessimism about the global economic outlook continued to take its toll on oil prices. Light, sweet crude for December delivery was down 0.82 cents at $53.57 a barrel in electronic trading on the New York Mercantile Exchange by mid-morning London time. The contract Tuesday fell 56 cents to settle at $54.39, the lowest since January 2007.
The euro was unchanged at $1.2716 while the dollar was 0.2 percent lower at 96.71 yen.