Just after midday, London's FTSE 100 index was down 0.9 percent, with airlines hard hit after low-cost Irish carrier Ryanair posted soaring first-quarter profits but hinted at a price war in the sector.
Eurozone stocks also slid as a key survey showed that private sector business activity slowed in July for the second month running.
IHS Markit said its July Composite Purchasing Managers Index (PMI) came in at 55.8 points, the lowest reading in six months. A reading above 50 indicates economic expansion.
"The FTSE has suffered a rude awakening to the new week," said IG analyst Joshua Mahony.
"One of the biggest drags we have seen has come from the airline sector, with Ryanair's warning of a potential air fare war in the coming months leading to sharp falls for EasyJet and IAG, the owner of airlines including British Airways, Iberia and Aer Lingus.
"A host of eurozone PMI surveys have somewhat undermined the recent theme of mainland European strength."
In London, EasyJet shares dived 3.58 percent to 1,265 pence and IAG dropped 3.31 percent to 570.50 pence.
Frankfurt and Paris were also buffeted by the strong euro, which weights on exporters.
In Asian trade, the European single currency rallied to $1.1684 -- the highest level since August 2015 -- before profit taking set in.
The euro was propelled by hopes that the European Central Bank (ECB) might begin to wind down or taper its vast stimulus soon.
The dollar has meanwhile been handicapped by US political worries and the Federal Reserve's monetary policy outlook.
- 'Unwinding of Trump trade'? -
"The euro is generally being boosted by the belief that the ECB will announce tapering before the end of the year," Oanda anlayst Craig Erlam told AFP.
"While the Fed has openly been on a tightening path, the recent commentary has suggested the pace could slow going forward."
"With President Donald Trump getting nowhere on his growth agenda, the need for the Fed to keep raising at the current rate has reduced. What we are effectively seeing is the ongoing unwinding of the Trump trade, from a rates perspective."
Asian stocks however rose in value as investors awaited this week's Fed policy meeting and the release of big-name earnings results.
However, uncertainty surrounding Trump's presidency continues to drag on sentiment, with Wall Street's three main indexes ending last week on a negative note.
The single currency has extended last week's rally against the greenback after European Central Bank boss Mario Draghi said policymakers would address its vast stimulus programme by the autumn, fuelling speculation they would start winding it in.