Europe close: Auto and Tech stocks crater, sentiment hit by yuan weakness

Linked in part to the above, traders were also monitoring the continued drip lower in the Chinese yuan, alongside weakness in the currencies of some other large Asian countries, such as India and Indonesia.

Political concerns in Germany and in the euro area more generally may also have played a hand, although for the time being at least some analysts appeared to consider them more of a medium-term risk.

"European markets have led the way lower, with the threat of a breakdown in trade disproportionately hurting stocks in countries which enjoy a sizeable trade surplus with the US. The continued deterioration in the Chinese yuan highlights the influence the Chinese government has upon their exchange rate, with the 5% rise in USDCNH over the past two months shifting the trade of terms before any tariffs even start to kick in," said Joshua Mahony at IG.

At the close, the benchmark Stoxx 600 was 0.82% or 3.10 points lower at 376.87, alongside a drop of 1.39% or 171.38 points to 12,177.23 for the German Dax, while the FTSE Mibtel was down by 0.58% or 125.57 points to 21,432.3.

Worst hit, as shares on the Continent gave back most of the prior day's bounce, were auto and tech stocks, with their respective sector subindices on the Stoxx 600 shedding 2.36% and 2.64%, respectively.

Stoking selling in the former, German auto components supplier Osram Licht AG cut its guidance for full-year 2018 like-for-like by two percentage points to between 1.0% and 3.0%.

"Restrictions on trade and sales as well as planning risks affecting automotive manufacturers have created noticeable uncertainty," the company said in a statement, setting-off a 21% drop in the share price, for the biggest fall within the Stoxx 600 on Thursday.

In the background meantime, overnight Chinese stocks finished the session at their lowest level since March 2016.

Trade protectionism was one of three key factors that markets needed to guard against in the immediate future, strategists at HSBC wrote in a research note sent to clients on Thursday, with the other two being tighter financial conditions in the US and higher oil prices.

Political worries also posed a potential existential risk for the European Union, HSBC said, although for now the investment bank deemed that more a risk than reality.

On that note, traders were also keeping an eye out for headlines from the EU leaders' summit in Brussels, with Chancellor Angela Merkel under pressure from her own coalition partners to clinch an agreement on illegal immigration.

In a more positive vein, analysts at Credit Suisse told clients they were hopeful that the US and China would be able to iron out their differences on trade, even if for no other reason than because the former had three times as much foreign direct investment in the other than vice-versa.

On the economic data front, the European Commission's industrial confidence index for the euro area in June surprised to the upside, printing at 6.9, which was unchanged from the month before (consensus: 6.4).

Roughly as expected, GfK reported that its index of German consumer confidence in July was unchanged too, at a reading of 10.7

Meanwhile, in Spain, INE reported that harmonised consumer prices rose at a year-on-year clip of 2.3% in June, accelerating from May's reading of 2.1%.

The pick-up in price pressures was more marked in Italy, with ISTAT reporting that it picked-up from a 1.0% pace in May to 1.5% for June.

However, in Germany preliminary data showed the year-on-year rate in harmonised CPI retreating from a 2.2% clip for May to 2.1% in June.

Shares in Sweden's H&M ended the day higher, recovering from an initial sharp drop after the fashion retailer said that its stock-in-trade had ballooned to a record $4bn over the past quarter - forcing discounts.

The above was the result of continued snags in the roll-out of a new logistics system.

However, H&M's boss forecast an improvement for the second half of the year, giving the shares a lift in th process.