Europe close: Stocks drop after US producer price data

“After its attempt to make headway yesterday, the FTSE 100 is on the back foot again, and looks set to end the week on a downbeat note," said IG chief market analyst Chris Beauchamp.

"It is in good company, with markets across Europe lower following signs that price pressures in the US are beginning to revive. Stocks have been highly sensitive to bad news throughout August, and a combination of rising US inflation and weak Chinese data in recent sessions has been enough to tip the FTSE 100 to the downside once again."

Against that backdrop, the pan-European Stoxx 600 was down by 1.09% to 459.17.

In parallel, the French Cac-40 was down by 1.26% to 7,340.19 and Germany's Dax by 1.03% to 15,832.17.

On a more positive note, reports indicated that Beijing would allow provincial governments to raise funds to pay down the debt of local government financing vehicles.

In geopolitical news, Spanish daily El Mundo cited Ukrainian foreign minister Dmytro Kuleba as saying that the country would not negotate directly with Vladimir Putin, although it was open to mediation.

However, at another point in the interview, Kuleba reportedly said that "we can negotiate with Russia once they have withdrawn their troops from our lands, but not with Putin. This can be achieved through a combination of war and diplomacy."

When asked if talks could begin before a withdrawal, Kuleba said: "it depends on the circumstances. We do not trust the Russians' word, no sane person would. Before a withdrawal we would want to be sure that they're serious and that it's not a faint to only then attack later [...]."

Bechtel was the top gainer on the Stoxx 600 after the IT systems provider reported better-than-expected second quarter profit and revenues.

UBS was right behind jumping 5% after ending the Swiss government's $10bn backstop for the stricken investment bank.