European stock markets fell on Wednesday, with Frankfurt shares briefly shedding more than 2.0 percent as speculation swirled over a potential credit rating downgrade, dealers said.
In late morning trade, Frankfurt's DAX 30 index of top companies sank as low as 7,514.01 points. It later stood at 7,587.52, down 1.24 percent from Tuesday's closing level.
Elsewhere, London's benchmark FTSE 100 index slid 0.54 percent to 6,270.82 points and in Paris the CAC 40 dropped 0.93 percent to 3,651.45 points.
"Equity markets took a sharp leg lower in Europe, giving back early gains as rumours of a German downgrade sparked heavy selling," said Matt Basi, head of sales trading at CMC Markets UK.
"The market reacting so drastically to idle chatter of this nature is probably less indicative of any belief in the gossip than of the general nervousness amongst traders, as the bleak macro backdrop combines with wild commodity swings, acts of terrorism and unravelling geopolitical situations in North Korea and Israel to undermine investor confidence."
In foreign exchange activity, the European single currency edged down to $1.3162, from $1.3174 late in New York on Tuesday.
"Once again, fear rather than optimism is the overriding factor affecting European traders, and early market rumours of a German debt downgrade have seen the DAX lead the way lower," added analyst Alastair McCaig at trading group IG.
Gold prices dipped to $1,379 per ounce on the London Bullion Market. That compared with $1,380 late in New York on Tuesday, when it had struck a two-year low at $1,321.95 on the back of disappointing Chinese GDP data.
In company news, British retail giant Tesco saw its share price slide 3.31 percent to 372.38 pence after posting falling annual profits.
Tesco said it took a £1.2-billion ($1.8-billion, 1.4-billion-euro) hit from failed US division Fresh & Easy, sparking the first drop in annual profits in almost two decades, and confirmed its exit from the United States.
Net profits slumped 95 percent to £124 million in its 2012/2013 financial year, compared with £2.806 billion last time around, Tesco revealed.
Earnings dived as Britain's biggest retailer also booked a £804-million writedown on the value of its property portfolio in Britain.
Shares in the European aerospace and defence giant EADS leapt by 4.27 percent to 38.78 euros in Paris however as the group revamped its shareholder structure with German automaker Daimler and French media group Lagardere selling their sizable stakes.
Elsewhere, Asian equities traded mixed on Wednesday as a rebound on Wall Street settled nerves after a two-day sell-off sparked by the weak Chinese growth data.
Tokyo climbed 1.22 percent, Sydney rose 1.09 percent, while Seoul and Shanghai were flat and Hong Kong fell 0.47 percent.
Traders also moved in to pick up cheap stocks after the previous day's sell-off, which was inflamed by a double bomb attack on Boston that killed at least three people and injured more than 180.
Wall Street provided a strong cue thanks to upbeat data on housing starts and good earnings reports from corporate giants including Coca-Cola, Johnson & Johnson and chipmaker Intel.
The Dow, which on Monday suffered its worst fall in five months, jumped 1.08 percent, while the S&P 500 climbed 1.43 percent back towards recent record highs.