London's benchmark FTSE 100 index slumped 3.52 per cent, Frankfurt's DAX 30 shed 2.35 per cent and the Paris CAC 40 lost 2.44 per cent. Madrid gave up 1.36 per cent and Milan slid 1.18 per cent, as both indices reversed solid opening gains.
China, which is the world's second biggest economy, said today that its inflation rate rose in July to its highest level in more than three years.
China's consumer price index rose 6.5 percent last month compared to a year earlier, the National Bureau of Statistics (NBS) said in a statement, the highest level since June 2008 when it reached 7.1 percent.
Some analysts are concerned Beijing might go too far in tightening monetary policy and trigger a sharp slowdown in the Chinese economy, which could have dire consequences around the globe.
Asian stock markets closed sharply lower today, a day after equities had plummeted around the world on growing growth and debt strains.