With the world economy looking shaky, and surprisingly weak jobs figures last month suggesting even the United States is not ready for higher interest rates, concerns over the economic fallout of a Brexit have lurked in the background for weeks.
The pan-European FTSEurofirst 300 index and the European STOXX 600 index were both down by 0.6 percent.
Asia markets were trading mixed after US equities squeezed out gains overnight. The Nikkei 225 was up 1.94 percent despite having been under pressure in recent weeks due to the yen‘s strength against the USD. The Hang Seng gained 0.23 percent while the Shanghai Composite was off 0.33 percent.
Banks were down 3.4 percent, among the top sectoral fallers. The sector is down over eight percent so far this week as concerns over profitability in a low-growth, low-interest rate environment have knocked confidence in the sector.
The lack of price visibility was blamed for accelerating a sell-off in European shares, while trading volumes in German government bond futures contracts fell by around a third.
Much of Europe's stock markets were closed ahead of the holiday. The euro zone blue chip Euro STOXX 50 rose 0.06 percent on Tuesday but rose 4.5 percent in the five days leading into the Christmas break.
Investors lowered their exposure to riskier assets after a provisional budget deal in Washington this week eased some of the fiscal drag on the US economy.
Manufacturing activity across France hit a 17-month high in July according to the latest Purchasing Managers Index (PMI) survey, pointing to an emerging recovery in the euro zone's second-biggest economy.
The dollar was under pressure on Friday and shares were on track for a third straight week of losses as markets suffered an uneasy run-up to US jobs data later in the session.
The dollar's strong performance took the shine off gold, which typically serves as an alternative to the US currency. Spot gold fell as much as 1.5 percent to a low of USD 1,426.40 an ounce.
It was spurred past the key 100 level when weekly US jobless claims fell to five-year low, just over month after the Bank of Japan unveiled a massive stimulus plan to boost the economy.
Stock markets around the world dipped on Thursday, fluctuating between gains and losses as investors worried about the economic outlook following weak US data but also looked for a rebound from recent declines.
European shares and the euro inched higher on Tuesday, although gains were limited by fears that Cyprus's raid on bank deposits could become the template for future euro zone bailouts.
European shares dipped on Friday, putting a key index on track for its worst weekly drop since November, as worries over Cyprus' bailout problems dented sentiment.
Independent analyst Ambareesh Baliga told CNBC-TV18 that his outlook has turned less optimistic with the market-slide across the eurozone and a limp Railway Budget
European shares rose and the euro hovered near a two-week low on Friday after the European Central Bank rekindled expectations that it could cut interest rates again
European shares edged up but the euro fell and German bonds trimmed their losses on Monday as a resurgence of worries about Europe undermined positive sentiment stemming from stronger U.S. and Chinese economic data.
European shares fell for a second straight day and the euro halted its recent rally, as weak German retail sales and poor earnings at its biggest bank added to investors' nerves after a shock fourth quarter contraction in the US economy.
European shares consolidated near two-year highs on Tuesday and oil prices steadied as investors awaited data on the strength of US economy and a Federal Reserve policy decision later in the week.
The euro hit an 11-month high and European shares dipped on Friday as markets braced for news on how much banks will repay of the one trillion euros in European Central Bank crisis funds that have been keeping them afloat.
European shares edged down on Thursday as concerns grow over the outlook for growth and corporate earnings, while oil prices gained support after Islamist militants attacked an Algerian gas field.
European shares and the euro fell on Wednesday after Greece's international lenders failed to reached an agreement needed to provide it with emergency aid, though some of the losses were recouped on talk that a deal was close.
European shares fell for a second day running on Thursday, hit by evidence that the debt crisis has slowed euro zone economic activity and by persistent concerns about fiscal problems in the United States.
Gold prices were little changed on Tuesday as E uropean s tock markets rose and the dollar weakened, but moves were limited as New York markets remained closed due to Hurricane Sandy, and ahead of a key US jobs report due later this week.
European shares and the euro rose on Tuesday as the initial damage inflicted by a powerful storm on the US east coast looked to have been less severe than many had expected.