Market made a modest recovery as the fallout following the Italian election eased.
The prospect of a return to the polls in July, which could be a seen as a referendum for or against the euro gave Europe's stock exchanges the jitters.
The German stock market made a tentative recovery on Wednesday.
The Dax rose by 0.16 per cent to 12,686.53 points. In the last two days it had lost about 2 percent due to the politically uncertain in Europe's third largest economy.
Stocks fell in Asia on Wednesday after turbulent sessions in the U.S. Japan's Nikkei 225 index dropped 1.5 percent to 22,013.86 in the morning session while The Hang Seng in Hong Kong slipped 1.2 percent to 22,013.86.
Robert Halver, Head of Market Research, at Baader Bank, said: "The market calmed down a little bit because everybody knows Italy is too big to fail, because it can't . Should Italy really attempt to leave the Euro (currency), the EU and the ECB (European Central Bank) will resist. You could say it is blackmail, Italy demands and the EU and ECB will pay up, they have to."
The S&P 500 fell 1.2% and the Dow Jones ended 1.6% lower. The falls in the US were mirrored in Japan's Nikkei Index and The Hang Seng in Hong Kong.
Italy searched for a last-minute exit from almost three months of political turmoil on Wednesday, with its biggest party looking to make a renewed attempt to form a coalition government with the right-wing League.
The two anti-establishment parties, the 5-Star Movement and League, had abandoned plans to jointly take power at the weekend after the president blocked their proposed cabinet lineup.
President Sergio Mattarella's veto of 81-year-old eurosceptic Paolo Savona as economy minister appeared to tip the country back towards repeat elections and triggered a dramatic speculative attack on Italian financial markets.
The parties are now trying to find "a point of compromise on another name" for the economy ministry, said the source close to 5-Star, the single-biggest party in the new parliament.
The sense that a resolution of the stalemate might be at hand came from Prime Minister-designate Carlo Cottarelli, who was tasked by the head of state this week to calm the turmoil and plan for repeat elections after the summer.