Spain's central bank said the country's gross domestic product continued to contract at a "significant rate" in the third quarter, while there is also uncertainty over whether the country will accept the terms of a bail-out.
Eurozone worries were compounded by strikes in Greece over austerity cutbacks, which saw London's FTSE 100 Index close 1.6% or 91.6 points down at 5768.1.
France's Cac 40 slumped 2.8% and the Dax in Germany was 2% lower.
Wall Street followed European indices into the red, with the Dow Jones Industrial Average down around 20 points as the Footsie closed.
The Dow had fallen more than 100 points in the previous session after investors were spooked by a member of the US Federal Reserve casting doubt on the effectiveness of its stimulus efforts.
Concerns over Spain caused 10-year bond yields to rise above 6% for the first time since the European Central Bank outlined plans to intervene in the European bond market earlier this month.
But Spain's prime minister Mariano Rajoy has yet to say whether Madrid will apply for aid, given the conditions attached to such bail outs.
The pound rose to nearly 1.26 euros as the European woes hit the single currency.
Sterling fell to 1.61 US dollars, with the greenback seen as a safer currency amid the eurozone troubles.
In London, the blue-chip fallers board was dominated by financial stocks, with Royal Bank of Scotland off 6% or 14.9p to 255.1p, Barclays down 9.6p at 213.7p and Lloyds Banking Group 1.7p lower at 38.9p.
In the insurance sector, More Than parent RSA dropped 5% or 5.6p to 113.1p amid fears over the cost of claims related to the floods across the UK after the most intense September storm for decades.
Aviva was also lower, down 7.8p to 321.3p, and Legal & General dropped 3.2p to 132.7p.
There were only two blue-chip stocks in positive territory, with quality control services group Intertek up 8p to 2720p and British American Tobacco 2p ahead at 3205p.
Outside the top flight, the recent strong run for shares in Domino's Pizza came to an end after third quarter sales figures disappointed investors.
Sales in the UK were up 3.7% on a like-for-like basis, but this was below the rate of the first half, prompting shares to slide 22.5p to 540.5p.
Waste disposal group Shanks was also under pressure after it warned its profits will be slightly below City expectations due to a significant downturn in its work sorting and reprocessing industrial and construction-related waste.
Shares fell by 15% at one stage, although with one analyst hopeful that the issues facing the group were cyclical the stock pulled back slightly to close 12% or 11.25p lower at 79p.
Topps Tiles, which is the UK's largest tile and wood-flooring specialist retailer, was 4% lower despite a robust end to its financial year.
Its sales are expected to increase by 3.7% on a like-for-like basis in the quarter to Saturday, resulting in a decline of 1% for the full 52 weeks.
And while it expects to meet profit forecasts for the year, shares were 2.25p lower at 47p after Panmure Gordon removed its buy rating on the stock.
The only Footsie risers were Intertek up 8p to 2720p and British American Tobacco 2p ahead at 3205p.
The biggest Footsie fallers were Royal Bank of Scotland down 14.9p to 255.1p, Evraz off 11.8p to 238.2p, RSA Insurance down 5.6p to 113.1p and Barclays 9.6p lower at 213.7p