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European stock markets slid on Wednesday, while the euro recovered against the dollar, as traders' focus fell on Italy after a credit rating downgrade.
Weak Chinese trade data added to concerns about economic growth, traders said.
They were waiting for a speech by US Federal Reserve chief Ben Bernanke and the release of minutes from the bank's last meeting, for an idea about the future of the Fed's stimulus programme.
In afternoon trading, London's FTSE 100 of leading companies fell 0.37 percent to trade at 6,488.89 points. Frankfurt's DAX 30 dropped 0.18 percent to 8,042.96 points and in Paris the CAC 40 decreased 0.13 percent to 3,838.43.
Milan's MIB index shed 0.66 percent to 15,686.14 points.
Wall Street opened mixed meanwhile with the Dow Jones Industrial Average edging up 0.07 percent and the tech-heavy Nasdaq ceding 0.04 percent.
Italy's coalition government came under growing pressure on Wednesday from members of Silvio Berlusconi's centre-right party protesting against the former premier's legal troubles, and from bad news on the economic front.
The country's borrowing costs meanwhile rose in an auction of 12-month bonds, rising to 1.078 percent from 0.962 percent last month after Standard and Poor's cut the recession-hit country's credit rating.
"After two straight days of strong gains Europe turned negative, somehow cautious after S&P downgraded Italian government debt to BBB, just two steps away from junk grade," said Gekko Markets trader Anita Paluch.
In foreign exchange trading, the euro rose to $1.2825 from $1.2781 late in New York on Tuesday, when the European single currency hit a three-month low point at $1.2755.
The dollar dropped to 100.23 yen from 101.11 yen.
Sterling recovered a day after falling sharply against the dollar and euro. The fall was caused by weak manufacturing output data that put the brakes on the outlook for a better-than-expected economic recovery for Britain.
The price of gold eased to $1,252.25 an ounce from $1,255.50 Tuesday on the London Bullion Market.
Despite the economic strains, British luxury clothing and handbag maker Burberry said group sales rallied in the first quarter of its financial year, boosted by strong growth in Asia Pacific and the Americas, and thanks to keen demand for its spring/summer fashion collection.
Investors welcomed the earnings update, sending Burberry's share price to the top of London's FTSE 100, with a jump of 3.70 percent to 1,493.35 pence.
Economic conditions have "not held back Burberry... with the board continuing to emphasise the opportunity they see for sales growth in the Far East", noted analyst Matt Basi at traders CMC Markets UK.
Asian stock markets closed mixed on Wednesday, with Japanese shares hit by a pick-up in the yen, while Hong Kong and Shanghai saw healthy buying despite worse-than-expected trade data out of China.
Later, investors will pore over the minutes of the Fed's most recent meeting for an idea of when it will bring an end to its $85 billion-a-month bond-buying scheme aimed at kickstarting US growth.
Global markets are showing signs of stabilising after weeks of fluctuations caused by expectations of an end to the scheme.
The likelihood it will start winding down this year has grown in recent weeks with a slew of data showing the US economy strengthening. The Fed has said it will start to reel in the programme once a recovery looks solid enough.