The pan-European STOXX 600 closed 0.6% lower, with London's FTSE 100 sliding 1.5% as a jump in the pound hurt exporters on the index, while heavyweights like AstraZeneca, BP, and GlaxoSmithKline traded without entitlement to a dividend payout, hitting their shares.
Reversing a recent trend, investors favoured pockets of markets that have remained resilient in the wake of the coronavirus crisis such as the technology sector. On Wall Street, Apple was set to record $2 trillion in market capitalisation.
That left some of the cyclical sectors that are more exposed to an economic downturn, such as banks <.SX7P>, oil & gas, miners and automakers, falling between 0.8% and 1.9%.
Geir Lode, head of global equities international at Federated Hermes, noted that it is difficult to gauge whether a rally in these cheaper stocks will be sustained.
"It reflects the uncertainty that still pervades the world as we continue to negotiate our way back to normality as well as increasing U.S.-China tensions," Lode wrote in a note.
After a U.S. move to ban two popular Chinese apps last week, investors were nervous about upcoming talks between Beijing and Washington officials over a trade deal agreed earlier this year.
Meanwhile, U.S. Democrats and Republicans remain deadlocked after weeks of wrangling over a fifth coronavirus aid bill to support a struggling economy.
Trillions of dollars in stimulus and a stellar rally in technology stocks have helped the U.S. S&P 500 reach striking distance of a record high. The European blue-chip index <.STOXX50> is still about 15% below its February peak, but the pace of recovery for both from a market crash in March has been similar.
(GRAPHIC: S&P 500 lags STOXX 50 in euro terms from mid-March lows -
Weak earnings also dented the mood, with struggling conglomerate Thyssenkrupp plunging 16.3% after it said its steel unit would rack up 1 billion euros ($1.2 billion) in operating losses this year, raising pressure to fix or sell the division.
TUI, the world's largest tourism company, fell 6.2% as it sank to a 1.1 billion euro ($1.30 billion) loss in the third quarter due to the COVID-19 pandemic.
Danish brewer Carlsberg slid 5.8% on a warning that lockdowns will impact sales in the second half of the year in its key markets of China and Western Europe.
By Sruthi Shankar and Sagarika Jaisinghani