The pan-European STOXX 600 <.STOXX> index fell 1.1 percent, its biggest drop in two months, pulling back from a 3-1/2 month high hit on Tuesday. Germany's export-oriented DAX <.GDAXI>, which has been especially sensitive to trade disputes, tumbled 1.5 percent.

U.S. President Donald Trump on Wednesday signalled a new direction in U.S.-China trade talks, saying the current track appeared "too hard to get done" and that any possible deal needed "a different structure."

Adding to investors' nerves on trade was data showing euro zone economic growth slowed much more sharply than expected in May.

Meanwhile Italy's FTSE MIB <.FTMIB> hit its lowest level since early April as a sell-off in government bonds resumed and bank stocks <.FTIT8300> sank 1.7 percent.

"Italy remains centre stage with its political developments," said Alessandro Balsotti, portfolio manager at JCI Capital. "The minister and economy minister choices and the actual creation of a government rather than new elections will be the drivers for investors in Italian assets in coming weeks."

An attempt by a little-known professor to become Italy's next prime minister hit a hurdle following allegations that he had inflated his academic credentials.

The FTSE MIB has fallen 4.5 percent so far in May and is on track for its worst month in nearly two years.

However some saw bargain-hunting opportunities.

Deutsche Bank on Wednesday said political worries could offer an opportunity to buy shares in Italy's largest listed firm, oil major Eni.

The energy index <.SXEP>, the biggest sectoral gainer so far this year in Europe, fell 3 percent as an unexpected build in U.S. crude inventories and the possibility of an increase in OPEC output sent crude prices lower.

It was the index's biggest single-day slide since the global stocks sell-off in early February.

Shares in oil majors Total, BP and Royal Dutch Shell fell between 1.9 and 3.2 percent, while Eni declined 1.1 percent.

Basic resources stocks <.SXPP> also dropped 2.5 percent, their biggest decline in 2 months as metal prices fell on the fading optimism over trade talks.

French telecom stocks were a rare bright spot in an otherwise negative market. Iliad gained 2.7 percent, while Orange led the CAC 40, up 0.7 percent.

It was the sector's second day of gains after comments on Tuesday from France's telecoms regulator suggesting support for consolidation, which has been much anticipated by investors.

Analysts at Goldman Sachs predicted consolidation in French telecoms could create 16 to 32 billion euros of value, raising their target prices for several stocks in a note on Wednesday.

Netherlands-listed shares in Altice traded up 30.2 percent. Traders put the move down to readjustment after the spin-off of its U.S. unit, dealmaking hopes and a squeeze of short positions in the struggling stock.

Dashed dealmaking hopes drove Renault shares down 5.3 percent, top fallers on France's CAC 40, after CEO Carlos Ghosn said Renault and Nissan are unlikely to merge before 2020.

Euronext fell 5.4 percent after UBS downgraded the stock to "sell", saying the exchange operator would see weaker volumes.......

(Reporting by Danilo Masoni and Helen Reid, Editing by Richard Balmforth)

By Danilo Masoni and Helen Reid