European stock markets closed lower and the euro fell Wednesday as concerns over the eurozone debt crisis once again unsettled investors after sharp recent gains.
Dealers said a subdued German government bond sale and continued weakness in the eurozone private sector dented sentiment and encouraged some profit-taking.
Figures showing that the commercial banks deposited record amounts with the European Central Bank added to the unease, suggesting that lenders remain reluctant to lend to each other amid ongoing market tension.
Analysts said the banks appear to want to hold their excess funds at the ECB after borrowing massively under a new three-year facility, rather than risk on-lending the money, as was hoped they would do to boost economic activity.
Spain and Italy came under heavy pressure, with the two countries seen as the next most at risk in the eurozone crisis, made more vulnerable by the lack of growth to help offset their large debt burden.
The Milan market was additionally hit after Unicredit priced its 7.5 billion euros share offer at a 43 percent discount to Tuesday's finish, sending its own and other bank shares down sharply.
In London, the FTSE index of leading companies closed down 0.55 percent at 5,668.45 points. In Paris, the CAC-40 index lost 1.59 percent to 3,193.65 points and in Frankfurt the DAX 30 dropped 0.89 percent to 6,111.55 points.
Milan tumbled 2.04 percent and Madrid shed 1.72 percent.
The euro fell to to $1.2934 from $1.3051 in New York late Tuesday and slipped back under 100 yen, to 99.20 yen.
In New York, the blue-chip Dow Jones Industrial Average was off 0.10 percent and the tech-dominated Nasdaq Composite fell 0.19 percent at around 1700 GMT.
US factory orders rebounded 1.8 percent in November following two months of decline but missed market expectations, leaving investors with no lead after recent mostly positive economic data.
"The US equity markets are ... giving back some of yesterday's solid gains, as the European equity markets are declining with banking concerns resurfacing to weigh on sentiment," Charles Schwab analysts said.
"The whiff of optimism from yesterday's session dissipated today as the concerns over eurozone debt came to the foreground again," said trader Anita Paluch at Gekko Global Markets.
Germany raised 4.0 billion euros ($4.2 billion) on Wednesday with a sale of 10-year bonds, considered the gold standard of eurozone debt, getting 5.14 billion euros in bids for the 5.0 billion euros on offer.
In November, a similar auction of 10-year debt attracted minimal demand, sending markets into tailspin as investors feared that even Germany was losing its safe-haven status due to the eurozone crisis.
Elsewhere, a key survey showed that private sector activity in the eurozone shrunk for the fourth consecutive month in December, hitting 48.3 points to continue below the 50 boom-bust line but it was up from 47 in November.
"The uplift in the eurozone PMI in December does little to dispel fears of the region sliding back into recession," said Markit chief economist Chris Williamson.
The ECB said meanwhile that banks put a record 453.18 billion euros ($591 billion) on deposit with it for 24 hours Tuesday, breaking a previous record set last week of 452.03 billion euros.
The ECB agreed last month to loan a record 489.2 billion euros to 532 banks in a three-year refinancing operation intended to avert a possible credit crunch but for the moment the banks prefer to take a loss by leaving it on tap at the central bank.
"There is a risk that businesses and households find it increasingly difficult to obtain the loans they need to finance investment. This would cripple economic activity," said Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast.
In Asian trade earlier Wednesday, Tokyo rose on its first day of trading in 2012 as investors took a strong lead from Wall Street overnight.
Tokyo gained 1.92 percent and Sydney 2.11 percent.