The 1.8 per cent month-on-month decline in May was much worse than expectations of no change and added to fears over the eurozone recovery.
London's FTSE 100 Index dipped 42.5 points to 6823.5 while Germany's Dax and France's Cac 40 fell by more than one per cent.
Michael Hewson, chief market analyst at CMC Markets, said: "The biggest concern remains that Europe's biggest economy is starting to stall, while the French economy looks set for another recession after last week's most recent data..." In New York, the Dow Jones headed lower after topping 17,000 for the first time last Thursday following stronger-than-expected jobs figures. Markets had been closed for Independence Day on Friday.
Currency markets saw the pound slip against the greenback on speculation that a rally that has seen sterling reach five-year highs may fade as the US Federal Reserve moves towards raising interest rates. But sterling was still above $1.71 It also fell against the euro, to below €1.26.
In equities, engineering group Weir was near the top of the blue-chip risers' board after an upgrade from Citi on the back of its exposure to the oil and gas market. Shares rose 20p to 2735p.
Former takeover target AstraZeneca topped the board with a climb of 33.5p to 4451p while Friends Life was close behind with a rise of 2.4p to 319.8p.
On the FTSE 250, house builder Taylor Wimpey slipped nearly three per cent, or 3.1p, to 114p, despite saying it had performed strongly in the first half of 2014.
The Buckinghamshire-based firm said in the half year to June 29 it increased the amount of homes it built by 11 per cent to 5,766, while average selling prices rose 10% to £206,000. But analysts at Panmure Gordon said the positive update was already factored into the share price. Brewer SABMiller was in focus after it said it would dispose of its £583 million stake in Tsogo Sun, the South African-listed gaming, hotel and entertainment group. The stock fell 42.5p to 3355p. Mothercare rose 13.5p to 268p after major shareholders Fidelity and Allianz backed management's rejection of an "inadequate" takeover offer from US suitor Destination Maternity.
Spire Healthcare, which runs 38 private hospitals in the UK, said its forthcoming flotation will see shares priced at between 210p and 300p, valuing the business at £955 million at the mid-point of the range and making it eligible for the FTSE 250.
The biggest risers on the FTSE 100 were AstraZeneca up 33.5p to 4451p, Friends Life up 2.4p to 319.8p, Weir up 20p to 2735p and G4S up 1.8p to 263.9p.
The biggest FTSE 100 fallers were Tullow Oil down 26.5p to 817.5p, Kingfisher down 10.7p to 351p, easyJet down 36p to 1325p and Barratt Developments down 9.7p to 372p.