The pan-European STOXX 600 <.STOXX> ended the session down 1 percent, recovering some of the ground lost earlier in the day but still firmly on track to make August its third month of declines in a row.
Britain's FTSE <.FTSE> fell 0.9 percent and the exporter-heavy DAX <.GDAXI> hit a five-month low.
The euro <EUR=EBS> surged above $1.20 for the first time since January 2015, after European Central Bank Chief Mario Draghi chose at last week's Jackson Hole conference not to talk down a currency that has gained 14 percent year-to-date against the dollar.
With risk aversion escalating after Pyongyang fired a missile over northern Japan, all market sectors fell in Europe.
Among the only bright spots were gold miners Randgold Resources (>> Randgold Resources) and Fresnillo (>> Fresnillo), up 4.6 and 2.6 percent respectively, as safe-haven asset gold soared to a 9-1/2 month high.
Banking stocks <.SX7P> sank 1.4 percent to a two-month low.
The VSTOXX <.V2TX>, a gauge of European investor anxiety, jumped to its highest in a week.
"I think today's correction is more due to the stronger euro, and North Korea is more an excuse or a catalyst," said Angelo Meda, fund manager at Banor SIM.
"Markets are discounting the impact of EUR/USD on European earnings, but as of today it's too early to call for a long-term correction," he added, saying the U.S. market was still supported by low interest rates and good earnings growth.
German commercial broadcaster Prosiebensat (>> Prosiebensat 1 Media SE) fell 14.5 percent after flagging a weaker outlook for advertising in the third quarter, the third cut in advertising guidance this year according to Deutsche Bank analysts.
"The most direct negative read-through is for German peer RTL," said analysts at the German bank.
"But this also represents another major piece of evidence of the disconnect between solid European macro trends and weakening TV ad momentum."
RTL Group <RRTL.DE> dropped 5 percent, while Spanish and British broadcasters Mediaset Espana (>> Mediaset Espana Comunicacion) and ITV (>> ITV) fell 7 and 4.9 percent. The media sector <.SXMP> is the second worst-performing in Europe this year.
Lundin Petroleum (>> Lundin Petroleum) sank 6.5 percent after its Korpfjell prospect, a joint venture with Statoil (>> Statoil) in the Barents Sea, found no oil and only non-commercial quantities of natural gas.
With Jackson Hole yielding no big change to monetary policy expectations, and the earnings season generating lukewarm share price reactions, catalysts for gains in European equities were scarce.
Some investors expected a correction, though valuations in the region remained attractive relative to Wall Street.
(Reporting by Helen Reid, Danilo Masoni and Kit Rees; Editing by Andrew Heavens and John Stonestreet)
By Helen Reid and Danilo Masoni