The pan-European FTSEurofirst 300 index <.FTEU3> slid 1.1 percent. The index had risen 1.3 percent in the previous session after Federal Reserve Chair Janet Yellen's call for caution in raising U.S. interest rates buoyed global stock markets.
French telecom stocks were among the worst performers after Orange (>> ORANGE SA) and Bouygues (>> BOUYGUES) extended negotiations on a possible sale of Bouygues Telecom until Sunday, citing a lack of progress ahead of a Thursday deadline.
Orange shares fell 1.8 percent, while Bouygues declined 3.7 percent. Rival French telecom stocks also lost ground, with Iliad (>> ILIAD) dropping 2.8 percent, Numericable-SFR (>> Numericable Group) down 3.3 percent and Altice (>> ALTICE) fell by 2.3 percent.
"I was selling Bouygues yesterday. These bid talks often take longer than expected, and the longer they go on, there's always a chance it could unravel," said Rupert Baker, a European equity sales executive at Mirabaud Securities.
Shares in Italian banks also slumped sharply, as three sources told Reuters that guarantor UniCredit (>> UniCredit SpA) was considering whether to delay Banca Popolare di Vicenza's 1.76-billion euro ($20 billion) rights issue, currently slated for April, if market conditions did not improve.
The fund-raising is regarded as a crucial test of investor confidence in Italian banks, whose shares have sold off sharply this year because of concerns about 360 billion euros of bad loans clogging their balance sheets.
"Investors fear that the recapitalisation of Popolare di Vicenza may end up with a large portion of unsubscribed rights, forcing UniCredit to take up a great part of it," ICBPI analyst Luca Comi said in a note.
The FTSEurofirst has recovered from lows reached in February but is still down by around 8 percent since the start of 2016. Concerns about a slowdown in China, the world's second-biggest economy, have hit world stock markets and commodity prices.
(Additional reporting by Danilo Masoni in Milan; Editing by Mark Heinrich)
By Sudip Kar-Gupta
