European stocks fell while the euro rose on Wednesday after Slovakia voted to block expansion of a key eurozone bailout fund, although the country was expected to eventually offer its backing.
Markets also digested disappointing results from aluminium producer Alcoa, which kicked off the US earnings season overnight.
In early European trade, London's benchmark FTSE 100 index fell 0.51 percent to 5,368.47 points, Frankfurt's DAX 30 dropped 0.84 percent to 5,816.80 points and in Paris the CAC 40 slid 0.55 percent to 3,135.63.
Markets dropped "as Slovakia's government voted against expanding the European Financial Stability Facility (EFSF)," said Simon Furlong, a trader at Spreadex.
"However it is assumed that the EFSF will be approved by the end of the week as Slovakia plans another vote, minimising losses" on markets.
Slovakia's parliament late Tuesday blocked a plan to expand the EFSF, dealing another blow to the bloc's leaders as they look for a solution to the crisis.
It effectively stops the expansion of the 440-billion-euro ($600 billion) bailout fund, despite warnings from European Central Bank chief Jean-Claude Trichet that the world financial system faces systemic dangers.
Slovakia is the last of the 17 eurozone members to vote on the revamp which must be approved by all.
The vote also toppled the government of Prime Minister Iveta Radicova, who failed to secure backing from the junior coalition Freedom and Solidarity party after she turned the measure into a confidence motion.
The prime minister said she would try and hold a second vote this week, looking for opposition support to get the measure through.
In foreign exchange deals Wednesday, the euro climbed to $1.3665 from $1.3660 in New York late Tuesday.
The euro will always be a strong currency, German Chancellor Angela Merkel said after the Slovakian vote.
"The euro has been and will always be a strong currency. Given the public debt issues at some of the European Union's member countries, I don't want the EU to become a debt union but a strong union instead," Merkel said at a business forum in Ho Chi Minh City in southern Vietnam.
The eurozone meanwhile needs a rescue fund of about two trillion euros -- almost five times its current size -- to overcome its crisis, said former British prime minister Gordon Brown.
"The European stability fund is only (about) 400 billion euros ... most people like me believe the fund that is needed to withstand the pressure is more in the order of two trillion euros ($2.7 trillion)," he told a Seoul forum Wednesday.
"Therefore we have to find solutions to that problem ... even at a time when European countries are not willing to vote for a bigger rescue fund."
Brown, who as finance minister kept his country out of the eurozone, said Britain had refused to sign up due to a lack of "proper measures ... to avoid the crisis we now have."
Asian shares closed mixed on Wednesday, with Tokyo losing 0.40 percent and Seoul rising 0.81 percent.
"Markets will trade with a cautious tone keeping one eye on earnings and the other on developments in the eurozone," said Mitul Kotecha, strategist at Credit Agricole.
US stocks also drifted to a mixed finish on Tuesday ahead of Alcoa's earnings. After the closing bell, the aluminium giant said its third-quarter net earnings were triple a year earlier but down from the previous quarter as metal prices fell and the European economy stumbled.