The flash PMI survey of purchasing managers showed German manufacturing contracted further in March, registering its lowest reading since June 2013 and compounding fears that unresolved trade disputes are exacerbating a slowdown.
Italian lenders Unicredit, Banco BPM, and UBI led losses among banks after Credit Suisse said the market is underestimating Italian banks' net interest income challenges. A no-deal exit could well have a depressive effect on Europe's major economies.
The United States and China will resume face-to-face talks next week, but it is unsure if the two sides can narrow their differences and end the trade war between the world's two largest economies.
Growth in the services industry slowed in line with a Reuters poll. The manufacturing sector reading dropped from 51.5 to 49.8, while the services PMI slipped from 50.4 to 48.7. It was the smallest increase to employment totals since May 2017, the report said.
"The protracted weakness in manufacturing remains a lingering risk, and overall growth concerns are likely to intensify should the industrial backdrop further deteriorate".
In the USA series, Markit's measure of manufacturing activity slipped to 52.5 in March from 53 in February, falling short of economists' forecasts for a modest rebound.
"Today's PMI indicates that GDP growth is unlikely to have bounced back" in the first quarter, said analyst Colijn.
Asian stocks closed flat, with China's Shanghai Composite Index , Japan's Nikkei , and Hong Kong's Hang Seng all within 0.2% of their opening levels.
"The euro zone economy ended the first quarter on a soft note, with the flash PMI running at one of the lowest levels seen since 2014", said Chris Williamson, chief business economist at Markit.
The German PMI fell from 47.6 in February to 44.7 in March due to sharp declines in new orders, lower work backlogs, and firings.
The decrease brought the index below the 50-point threshold demarcating an expansion in activity from a contraction as both the services and manufacturing sectors saw activity decline.
"Slack demand from domestic and worldwide markets prompted the sharpest cutback in output volumes for nearly three years", said Joe Hayes, economist at IHS Markit, which compiles the survey.