European stock markets closed a volatile week 2.7% lower on Friday, as escalating tensions in the Middle East fueled fears of a wider conflict in the region and investors also braced for the start of U.S. negotiations over sidestepping the so-called fiscal cliff.
The Stoxx Europe 600 index lost 1% to 262.86, marking the lowest closing level since early August.
Among notable movers in the index, shares of risk-sensitive sectors, such as banks and resource firms, posted some of the biggest losses.
The fiscal cliff--billions in automatic tax hikes and across-the-board spending cuts--"is still very high on the list of uncertainties.
With both sides overnight holding their grounds, investors are nervous nothing will come out of today's meeting," said Victoria Clarke, economist at Investec Securities.
Shortly after the European close, congressional leaders emerged from the White House meeting to label the discussions "constructive." U.S. stocks erased losses to trade in positive territory.
European shares on the move at week's end included Henkel AG & Co. KGaA, down 4.7% in Frankfurt.
The maker of household products reported third-quarter earnings and said it's "fully committed" to achieving 2012 financial targets.
And in Paris, shares of Renault SA added 1.2%.
Data showed new car registrations in Europe dropped at a slower pace in October, according to Dow Jones Newswires.
In London, shares of Melrose PLC slumped 11% after the investment company said that its 2013 sales outlook has become more uncertain and that its businesses aren't immune to "worsening of macroeconomic conditions internationally."
Pointing in the other direction, shares of Serco Group PLC gained 1%, after the international services company said it sees improved performance in second half of the year.
Investors mostly focused on developments in the U.S., as President Barack Obama met congressional leaders to discuss how to avert the looming cliff of tax hikes and budget cuts.
A Wall Street Journal report said that the White House was in advanced talks on a plan to replace the "sequester", a part of the fiscal cliff referring to automatic spending cuts, with a smaller package of cuts and tax increases.
The separate package would reduce spending by roughly $100 billion in 2013.
Both European and U.S. stock markets have this week sold off on worries that Democrats and Republicans will fail to reach an agreement over the budget dealings.
"Investors will be hoping that there is enough collective desire to reach agreement, but it is almost inevitable that discussions will be protracted and go down to the wire, which is likely to keep markets erratic and volatile over the coming weeks," said Rebecca O'Keeffe, head of investment at Interactive Investor, in a note.
Meanwhile, data from the U.S. showed that industrial production in October fell 0.4%, with Hurricane Sandy reducing total output by nearly 1%.
Escalating tensions in the Middle East also spread jitters across financial markets, as Israel and Hamas stepped up attacks in and around the Gaza Strip.
The conflict seemed poised to intensify as the Israeli government reportedly considered launching ground operations to forestall further attacks.
Palestinian militants fired more than 200 rockets on Thursday, with some landing near Tel Aviv, followed by 85 more missiles early Friday, according to media reports.
In London, shares of BP PLC lost 2.1%. The oil major on Thursday agreed to pay about $4.5 billion to settle federal charges related to its 2010 oil spill in the Gulf of Mexico, marking the biggest penalty ever levied by the U.S. Justice Department.
Also in the energy sector, shares of Royal Dutch Shell PLC gave up 2.1%, and BG Group PLC dropped 1.7%.
The U.K.'s FTSE 100 index lost 1.3% to 5,605.59, with shares of HSBC Holdings PLC down 0.9%. The London benchmark gave up 2.8% on the week.
In Paris, shares of French oil group Total SA fell 1.2%, as the CAC 40 index slumped 1.2% to 3,341.52. The index closed out the week 2.4% lower. Shares of Societe Generale SA lost 2.8%.
In Frankfurt, shares of Commerzbank AG sank 5%, while those of Deutsche Bank AG shed 3.8%. The DAX 30 index closed 1.3% lower at 6,950.53, and erased 3% on the week.
Write to Sara Sjolin at AskNewswires@dowjones.com