A late rally for banks prevented European shares closing at their lowest in more than eight months, though euro zone sovereign debt crisis persisted and drained investor confidence worldwide.
US stocks, however, pushed higher, led by bank shares a day after the US Senate passed the most sweeping overhaul of financial regulation since the 1930s. But worries about euro zone sovereign debt crisis continued to take a toll on investors' appetite for risk, US Treasuries debt prices rose through most of the morning as fears that global fiscal tightening would crimp an economic recovery drove a bid for safety, but turned as stocks rose.
European finance ministers meeting in Brussels came under intense pressure for quick solutions to restore confidence and avert an economic slump, with proposals including heavy penalties for euro states that break debt rules.
"Panic seems to be taking over" on the markets, said Manoj Ladwa, a trader at London-based financial spread betting company ETX Capital.
At City Index, another spread better, market strategist Joshua Raymond said that "the markets are a whole mess of uncertainty and fear right now."
German lawmakers on Friday backed the $1 trillion rescue plan for the euro zone. Skittish trading on a day when many US equity options and some options on stock indexes expire contributed to market volatility.
The price of spot gold, which hit a record high one week ago, was down for a fifth consecutive day, while crude oil pared earlier losses, a day after touching a seven-month low.
The euro traded up 0.70 percent at $1.2552, on pace for its first weekly gain against the greenback in six weeks. Bearish sentiment against the currency had become so extreme in the midst of the Greek-led debt crisis that investors started to buy the euro zone currency in case of intervention.
The FTSEurofirst 300 index of leading European shares fell 0.5 percent to a close of 970.00 points, after falling as much as 3 percent to 946.01 — its lowest since early September. Frankfurt’s DAX index ended at 5829.25 points, down 38.63 or 0.66 percent, shedding 227.46 points since last Friday. In Paris, the CAC-40 index closed at 3430.74 points, down 1.78 or 0.05 percent, losing 129.62 over the week.
The Nikkei average posted its biggest weekly drop since January 2009, as investors reduced holdings of riskier assets including equities on deepening worries about disunity in the euro zone on its debt crisis. The index ended down 2.45 percent or 245.77 points at 9,784.54, its lowest close in more than five months. On the week, the Nikkei fell 677.97 points.
Speaking on a visit to Brussels, Chinese Commerce Minister Chen Deming said Beijing was "following carefully" the development of Europe's debt crisis.
Several European states have racked up huge debts and deficits as a result of the global economic crisis and the current turmoil kicked in as investors lost confidence in governments' ability to repay.
