zone sentiment due to their sovereign bond holdings.
"There is a financial sell programme in the market this afternoon and the EU ex UK banks index broke the 50 day moving average, which triggered stop-loss selling," said a trader.
Corporate reports added to the cautious mood, French builder Vinci warning of a flat 2013 for its construction and concessions businesses, while both Swedish lender Handelsbanken's and farm chemicals maker Syngenta undershot expectations on operating profit.
So far, half of euro zone's large and mid-cap companies have missed full year earnings forecasts, prompting analysts to cut their 2013 expectations by 1.9 percent over the past month, according to Thomson Reuters StarMine. The UK looks relatively healthy in comparison, with only 32 percent of misses.
"The risk for earnings downgrades in the European equity space is relatively higher, given both ... the slightly elevated level of the consensus estimate - and also the short to medium-term effect that we think this (strong) euro effect is going to have over the next few quarters through translation losses, FX losses and export competitiveness losses," said Ashish Misra, head of investments at Lloyds TSB Private Banking.
However, in the longer term, he still sees strong prospects for stocks, staying "modestly overweight" on both UK and Europe.
"This correction which is now starting, hasn't really taken anyone by surprise. European equities are up 25-30 percent since last summer so it's not bad thing that they are pausing for breath," Misra said. "We see this as a reasonably shallow 5-7 percent, definitely single, digit correction."