Profit-taking across the board and fears that interest rates in Europe may have bottomed out sent Paris sharply lower at the close of a volatile session.
The CAC-40 lost 115.5 to 4,038.49 in the steepest correction since the Brazilian devaluation last month.
Traders said the 2.8 per cent fall may have been accentuated by the fact that income tax payments were due shortly in France, encouraging investors to cash in on earlier gains. Paris was the strongest European market in dollar terms last month.
Finance stocks were among the worst hit, losing 4 per cent on average. CCF fell €3.65 to €77 and BNP lost €50 to €71.50. Societe Generale ended €6.60 lower at €133 while Paribas lost €2.95 to €82.65.
In Frankfurt the Xetra DAX closed down almost 4 per cent as concerns about a possible rise in US interest rates outweighed positive sentiment from a fall in German unemployment. The DAX-30 index closed at 4904.35 points, down 122.87 or 2.44 per cent. In later screen-based trade the Xetra DAX index ended at 4850.67 points, down 201.77 or 3.99 percent.
Amsterdam fell 10.18 at 518.06 on the AEX index, pushed lower mostly by a shakeout in the financial sectors.
Against a background of interest uncertainty, ING tumbled €2.30 or 4.5 per cent to €48.40 and Aegon €3.15 to €91.65. ABN Amro shed 55 cents to €17.85 in 10.5 million shares traded.
ASM Lithography gained 35 cents to 41 following news of senior management changes, and steel leader Hoogovens turned in the best gain of the day, adding €1.25 or 4.7 per cent at €27.60.
News of a US marketing push sent Heineken up €1.10 to €47.70. Rival Grolsch, hit by results fatigue, slipped 75 cents to 21.15.
Milan was a heavy loser as profit-taking hit blue chips, including Telecom Italia, Fiat and the banking sector. The real-time Mibtel index finished 596 or 2.6 per cent down at 22,398.
Telecom Italia fell 38.5 cents at 8.048 on profit-taking after recent gains that followed stories of stake-building in the group. Tim, its mobile phone business, bucked the trend with a rise of 3.4 cents to 5.212.
Fiat lost 15.4 cents to €2.67 on heavy profit-taking after Monday's rally, sparked by speculation that the group was interested in BMW.
Madrid followed the main European markets lower. The general index closed 148.8 lower at 9,500 amid concern that US interest rates might rise and prompt a sell-off on Wall Street.