The pan-European STOXX 600 fell 0.3 percent, with euro zone stocks and blue-chips down 0.5 to 0.6 percent.

Falls followed a fragile Asian session which saw investors shed risky assets as joint U.S. and South Korean military drills began.

The risk-off move in Europe hit banks the hardest, down 0.8 percent with ING and French lenders Societe Generale, BNP Paribas and Credit Agricole among top losers.

After recent losses, the STOXX 600 was down 6 percent from its mid-May 20-month peak.

Strong metals prices helped cap benchmark losses, however, with mining stocks up 0.3 percent after London zinc rose to its highest in a decade on robust Chinese demand for steel.

Deal-making also boosted a few of the best-performing stocks.

Fiat Chrysler shares jumped 3.2 percent after Chinese carmaker Great Wall asked for a meeting with the Italian carmaker with the aim of making an offer for all or part of the auto group.

Fiat's shares have gained more than 13 percent in the past week since rumours first emerged that a Chinese buyer may be interested in the firm.

Maersk gained 4.1 percent to lead European stocks after the firm agreed to sell Maersk Oil to French oil major Total for $7.45 billion.

"We see the deal as free cash flow neutral over 2018/19, and accretive thereafter as capital expenditure falls closer to $500 million per annum," analysts at RBC Capital Markets said.

Total shares on the other hand pulled back 0.7 percent.

With the second-quarter European reporting season drawing to a close, 60 percent of companies have either beaten or met expectations, though share price reactions have been muted overall.

"In isolation the results appear quite good," said Barclays analysts looking back at the earnings season.

"However investors appear disappointed that the results were not as good as the record-breaking first quarter season," they added, saying concerned investors taking profits could be behind the lukewarm reaction in share prices.

Swiss chocolatier Lindt & Sprungli gained 1.4 percent after UBS upgraded it to a buy, saying its premium product offering helps it benefit more from lower cocoa input costs than peers.

"Despite a trend towards healthy snacking, Lindt's sales growth should be stronger than the market assumes, given its products are perceived as an indulgence," UBS analysts added.

(Reporting by Helen Reid; Editing by Kit Rees)