A decline in utility stocks following a profit warning at France's Suez (>> Suez Environnement) and tumbling tech stocks weighed, while a strong update from Novartis (>> Novartis) provided some support.
The pan-European STOXX 600 <.STOXX> index closed down 0.4 percent while Germany's DAX <.GDAXI> and the FTSE <.FTSE> dipped 0.8 and 0.9 percent respectively, with British shares also suffering from gains by sterling against the greenback.
The dollar fell to a three-year low after the U.S. treasury secretary said he welcomed weakness in the currency and as investors worried about U.S. President Donald Trump's protectionist agenda.
A weak euro or pound typically give an accounting boost to blue chips with revenues in dollars.
"This feels like the day that the dollar surrendered," said Pierre Martin, a senior sales trader at Saxo Bank.
In spite of Wednesday's dip, the STOXX 600 remains close to its highest levels since August 2015. Investors have been lured into European equities by the region's economic recovery and expectations of continued earnings growth.
A survey on Wednesday showed euro zone businesses had a much better start to 2018 than expected, ramping up activity at the fastest rate since the middle of 2006.
Suez slumped over 16 percent after the waste and water group revised down its 2017 earnings target due to additional costs in Spain and decisions to close services contracts in Morocco and India.
Bank of America Merrill Lynch downgraded Suez to "underperform" from "neutral."
"We think Suez can start to turn around its fortunes post-2018 by aggressively increasing cost-cutting and pushing for organic growth," it said.
Its fall dragged peer Veolia (>> Veolia Environnement) down 3.8 percent and sent the utilities index <.SX6P> down 1.3 percent.
Tech stocks <.SX8P> fell even more, down 1.5 percent after JP Morgan cut its rating for Apple (>> Apple) supplier AMS (>> ams) to neutral, pointing to iPhone X order weakness.
AMS slumped 9 percent, while Dialog (>> Dialog Semiconductor) and STMicro <STM.PA> both fell more than 6 percent.
Elsewhere among top fallers was Britain's Sage (>> The Sage Group plc), down 6.4 percent after a disappointing trading update.
Healthcare stocks <.SXDP> in the black, boosted by a 2.7 percent gain in heavyweight drugmaker Novartis (>> Novartis).
The Swiss group forecast 2018 operating profit would grow faster than sales as revenue from drugs accelerates and it exits a period when patent losses dented results.
"We see the top line returning to robust growth in the fourth quarter ... pointing at a successful business turnaround for 2018," Baader Helvea analyst Bruno Bulic wrote, affirming his "buy" rating on the stock.
A.P. Moeller-Maersk (>> AP Moller-Maersk) was another strong gainer, up 3.1 percent. Shares in the world's largest container shipping firm were supported by reports it is seeking a partner for its drilling unit, while a trader also cited an upgrade to "buy" at SEB Equities.
Shares in LSE Group (>> London Stock Exchange) surged in late trading and closed up 5 percent after Sky News reported that activist hedge fund TCI predicted a 15 billion pound takeover bid for the exchange.
(Reporting by Julien Ponthus and Danilo Masoni; Editing by Robin Pomeroy and John Stonestreet)
By Danilo Masoni and Julien Ponthus