Concerns that Europe lacks a concrete plan to keep Greece in the currency union pushed markets lower on Friday, with the euro nearing a 22-month low.
The likelihood of Greece leaving the 17-country euro currency union has been growing steadily since early May, when political parties opposed to the terms of the country's financial rescue made huge gains in an otherwise inconclusive election.
A new ballot planned for next month could see the anti-bailout political parties gain power, which would raise the likelihood of the country leaving the euro.
European leaders say they want Greece to stay in the euro, but have so far shown no willingness to compromise on its austerity terms. They have also approved no new measures to boost economic growth or stabilize confidence in the banking sector.
The uncertainty of a Greek exit from the euro will hang over European markets at least until the elections on June 17. Investors fear that in the meantime markets could continue to deteriorate, making any solutions next month too little too late.
"The threat from Greece remains real and an exit would possibly have contagion effects that the euro area would need to tackle," said Laurence Boone, analyst at Bank of America Merrill Lynch.
Britain's FTSE 100 was down 0.4 percent at 5,329.57 by midafternoon in London, while Germany's DAX dropped 0.3 percent to 6,300.18. France's CAC-40 slid 0.3 percent to 3,029.21.
Spain's Ibex was underperforming the wider region, falling 0.6 percent as investors waited for bailed-out lender Bankia to announce how much more money it needs from the government. Its shares were suspended from trading, having lost over 7 percent the previous day.
The euro edged down to $1.2532, not far from the 22-month low of $1.2515 it hit earlier in the week.
Wall Street lacked momentum after the open, with the Dow industrial average shedding 0.2 percent to 12,501.60 and the S&P 500 flat at 1,320.78.
In Asia, media reports that some of China's biggest banks will miss their annual lending targets for the first time in seven years rattled markets. Hesitation to take out loans suggests companies are delaying investment due to uncertainty about the economic outlook.
While Japan's Nikkei 225 index rose marginally to 8,568.08, Hong Kong's Hang Seng lost 0.3 percent to 18,609.85. South Korea's Kospi added 0.4 percent to 1,821.98 and Australia's S&P/ASX 200 shed 0.6 percent to 4,033.60.
Chinese economic growth fell to a nearly three-year low of 8.1 percent in the first quarter and factory output in April grew at its slowest pace since the 2008 crisis, raising the threat of job losses.
On Thursday, a private survey of Chinese manufacturers showed activity weakened further in May. The reports on the slowdown in bank lending were another sign that China's slowdown could be sharper than anticipated.
"This could also pressure China to take action as soon as possible. With this in mind, we wouldn't be surprised to see China announce some new investment projects soon," said Stan Shamu of IG Markets in Melbourne.
In energy markets, the contract for oil for July delivery was up 34 cents to $91 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 76 cents to settle at $90.66 in New York on Thursday.
The dollar was roughly unchanged at 79.60 yen.
Pamela Sampson in Bangkok contributed to this report.