European stocks lost ground on Wednesday as investors worried about the looming fiscal cliff in the United States and the regional debt crisis.
Investors are worried that Washington will struggle to find compromises to avoid a series of mandated tax hikes and spending cuts due to take effect next year which could send the world's largest economy back into recession.
In Europe the wrangling over a debt deal for Greece and evidence in German business confidence data on Tuesday that the pain from the crisis is spreading to the bloc's strongest economies, kept markets under pressure.
"The failure to sustain any momentum to the upside suggests there is a buyers' strike and they are staying on the sidelines, waiting for a resolution either in Greece or in the U.S.," said Ioan Smith, strategist at Knight Capital.
Both sides in the U.S. "fiscal cliff" debate stood their ground on Tuesday as they gathered in Washington for the first time since the election, with a fundamental tax dispute preventing a broader compromise on deficit reduction.
The FTSEurofirst 300 was down 0.3 percent at 1,096.06 points in early, retreating from Tuesday's 0.4 percent rise which was its first daily gain in four sessions.
London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 were also around 0.3 percent lower.
Greece's international lenders on Monday gave the country more time to fix its budget but the International Monetary Fund and euro zone policymakers are at odds over a long-term target to bring Greece's debt down.
"For the moment, the market's focus is on whether they can decide on a deal for Greece next week," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The euro was steady at around $1.2725 to the dollar. The single currency has lost nearly 2 percent against the dollar and more than 1.5 percent against the yen in November as concerns about Greece and Spain push investors towards the safe-haven U.S. and Japanese currencies.
The dollar rose 0.6 percent against the yen to 79.86 yen on Wednesday when Japan's Prime Minister Yoshihiko Noda said he was open to dissolving the lower house of parliament this week and calling elections next month in a bid to win support for political reforms.
The prospect of an early election is regarded as negative for the yen, as the most likely victor would be the main opposition Liberal Democratic Party and an LDP-led government could put pressure on the Bank of Japan to ease monetary policy.
Commodity markets were subdued, with traders watching developments in Europe and the United States but also wary about the ramifications of the political transition in China due to be announced on Thursday.
Brent crude was up 29 cents at $108.38 a barrel and U.S. crude was up 24 cents to around $85.47. Gold rose $3.25 to $1,728.14 an ounce but was still below a 3-week peak of around $1,738 struck on Friday.
