Energy shares also lost ground as crude oil prices fell 0.6 percent toward $80 a barrel on a stronger dollar. BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed 0.3 to 0.9 percent.
Investor appetite for risky assets such as equities fell, with the VDAX-NEW volatility index rising 2.3 percent after hitting a six-week low on Wednesday. The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower the market's desire to take risk.
Analysts said that rate decisions from the Bank of England and European Central Bank, due at 1200 GMT and 1245 GMT respectively, and key economic numbers this week will determine the market's near-term direction.
The European Central Bank is expected to hold interest rates at a record low of 1.0 percent and outline the next steps in its gradual withdrawal from emergency lending measures. The Bank of England is also likely to keep rates unchanged.
At 0917 GMT, the FTSEurofirst 300 index of top European shares was down 0.4 percent at 1,031.61 points after rising 0.8 percent on Wednesday. The benchmark index has surged 59 percent since hitting a record low in March 2009.
Wednesday's announcement by Greece for a further $6.5 billion in pay cuts and tax hikes to reduce its deficit offered capped losses, but investors remained cautious as they were unsure if the package will be enough to generate additional support from countries such as Germany and France.
Greece has mandated banks to sell a syndicated 10-year euro benchmark bond, a bank involved in the deal said.
"Despite yesterday's clarification on their austerity package, the Greeks have failed to settle markets' nerves, and we may endure a lack of movement until we receive confirmation on interest rates from both the UK and the ECB later today," said Owen Ireland, analyst at ODL Securities.
"With non-farms data scheduled for tomorrow, it promises to be a pivotal couple of days."
Banks were mixed, with Standard Chartered, Barclays, Lloyds , Royal Bank of Scotland, National Bank of Greece and Natixis rising 0.6 to 2.3 percent.
BNP Paribas and Credit Agricole fell 0.6 percent and 0.9 percent respectively.
Food and drug retailers were led higher by Ahold, which rose 4 percent to 21-month highs after the Dutch grocer said it will return 500 million euros to shareholders and keep its medium-term sales and margin growth targets.
J Sainsbury, Morrison and Carrefour rose 0.1 to 0.3 percent.
Among individual stocks, Danish shipping and oil group A.P.
Moller-Maersk fell 5.6 percent after its Chief Executive Nils Smedegaard Andersen said he did not expect container shipping unit Maersk Line to regain profitability in 2010.
Anheuser-Busch InBev fell 4 percent after the world's largest brewer said it has had a challenging start to 2010 with US volumes under pressure after unveiling mixed fourth-quarter earnings.
Later in the session, investors' focus will shift to US macroeconomic indicators, including weekly jobless, durable goods and pending home sales data. US non-farm payrolls numbers are due on Friday.
Across Europe, Britain's FTSE 100 index, Germany's DAX and French CAC 40 fell 0.3 to 0.5 percent.
