That followed a move by Italy's regulator to ban short-selling on financial stocks until July 27.

The FTSEurofirst 300 index at one point fell as much as 2.5 percent to 1,022.68 points, a new intraday low. It then edged back to 1,023.99 points, down 2.4 percent.

Spain's IBEX index was down 2.9 percent, while Italy's FTSE MIB index fell 3.8 percent.

Spain's stock market regulator issued the ban for three months and said it may extend it beyond Oct. 23.

"The ban will cause a little bit more uncertainty in the market: the ban extends on shares and indices, including cash operating and derivatives, and is due to volatility. It is sheer lack of confidence out there," said Mark Foulds, head of spreadbetting sales at ETX Capital.

Another London-based derivatives broker said the ban would result in speculation that the regulators had information that Europe's banks and other industries were in a worse state than people had expected.

"It implies that regulators want to protect their shares, and particularly banking shares, and the speculation will therefore be they see things or have information that is not currently in the market," said the broker.