Economic concerns mounted after the World Bank cut forecasts for the East Asia and Pacific region, saying the slowdown in China - the world's largest consumer of raw materials - could worsen and last longer than expected.
The FTSEurofirst 300 index closed down around 1 percent at 1,101.02 points, erasing much of a 1 percent rise on Friday after better-than-expected US employment data. The index has traded in a tight 25 point range since Sept. 26.
The euro zone Euro STOXX 50 index fell 1.4 percent to 2,496.09 points.
The World Bank's warning about the weakening Chinese economy caused a 1 percent fall in the STOXX basic resources index , whose constituents often rely heavily on demand from Asian economies, such as mining and steel companies.
The STOXX European bank index also fell 1.7 percent, as persistent worries over the euro zone debt crisis hit financial stocks.
Belgian bank KBC, which disappointed traders due to a lack of development on how it will repay state aid, was the worst performer on the FTSEurofirst 300, falling 5.2 percent.
"We have been taking profits on European equities from September onwards. Most of the 'good news' has already been priced in and the euro zone situation is still full of uncertainty," said Francois Savary, chief investment officer at Swiss bank Reyl.
INVESTORS BRACE FOR WEAK Q3 EARNINGS
Equity markets have rallied since late July, when the European Central Bank and other major central banks pledged new measures to fight off the effects of the economic slowdown and euro zone debt crisis.
The FTSEurofirst 300 has risen around 8 percent since late July.
But it has slipped some 2 percent from mid-September, when it hit a 14-month high, as investors have come to realise that although the ECB has prevented a major implosion in the euro zone, it has not yet fully resolved the region's problems.
The ECB cannot activate a government bond-buying programme until Spain requests a sovereign aid package, but euro zone ministers said on Monday that Spain does not need a bailout for now.
Italian carmaker Fiat fell 4.2 percent as it denied a media report of a probe into its liquidity position, pushing the STOXX European automobile sector down 2.5 percent.
Traders said stock markets were historically vulnerable to pull-backs in the final few months of the year, and companies in the pan-European STOXX 600 index were expected to report a 0.7 percent decline in earnings, according to Thomson Reuters Starmine data.
"We're coming into quarterly earnings season. We're coming into what is typically the most vulnerable point for equities markets," said Tavira Securities trading head Toby Campbell-Gray.
However Campbell-Gray said he would rather use equity market declines to buy stocks on the cheap than sell on the back of a recent rally.
Reyl chief investment officer Savary said he would consider buying equities if the Euro STOXX 50 fell to 2,400 points.
Berkeley Futures' head of trading Charles de Roeper felt any pull-back on European stock markets would be limited, with equities still offering better returns than benchmark government bonds via their dividend yields.
"We'll continue to be range-bound, but I don't really see much downside on this market, and we would be buyers on the dip," said de Roeper.
