Germany's DAX fell 1.55 per cent in floor trade while the XETRA DAX closed more than 2 per cent lower or 111.55 points to 5,226.20 in electronic trading as the deutschmark was boosted against the dollar by speculation that the Bundesbank may increase interest rates.

Paris CAC-40: 3944.91 (-29.34)

French shares fell as the market paused to digest its recent gains amid concerns in European financial markets that a Danish interest rate rise might augur further monetary tightening.

"We've seen a consolidation today but it's not worrying," said one Paris trader.

Milan Mibtel: 23826 (-236)

Italian shares closed near the day's lows in thin trading which dealers described as "nervous and lacking ideas". "The market has not made up its mind which direction to take," said a dealer, indicating that the volatility of last week looked likely to continue. The all-share Mibtel index fell 0.98 per cent.