German shares lost most, with traders citing the effects of a short-selling ban on financial stocks in other parts of Europe and intensifying worries about politicians' lack of a plan to address the euro zone sovereign debt crisis.

The European banking sector , exposed to the euro zone debt crisis, fell 6.6 percent and is down 29.7 percent this year. Heavyweight fallers included Barclays and Societe Generale , both down 11.6 percent. Germany's Commerzbank fell 10.5 percent.

The FTSEurofirst 300 index of top European shares ended the session provisionally 4.9 percent lower at 923.85 points, the biggest fall since March 2009.

"The market is beginning to price in a recession. The Philadelphia Fed number was an absolute abomination,"

Michael Hewson, market analyst at CMC Markets, said.

"And until we get some clear idea of how policymakers are going to deal with euro zone sovereign debt problems, it's not getting to get any better."

Copyright Reuters, 2011