The pan-European FTSEurofirst 300 index closed 0.1 per cent lower at 810.49 points, well above its intra-day low of 792.48 points after a late rally tracking US stocks.
US stocks rose on hopes a White House plan to shore up the financial system would help banks stem losses and revive lending.
Swiss Re tumbled 28 per cent after it posted a full-year net loss of about 1 billion Swiss francs and said U.S. investor Warren Buffett's Berkshire Hathaway was investing 3 billion Swiss francs ($3.9 billion) in the company.
Swiss Re wrote down twice that amount in toxic assets and said it would consider further equity raising of up to 2 billion francs.
Deutsche Bank fell 4.2 per cent after Germany's biggest lender posted a net loss of almost €4 billion ($7.8 billion) and predicted a bleak future.
"There is not much in the way of good news except that the news was not worse than expected,'' Fox-Pitt Kelton said in a note, adding: "The outlook statement was hardly encouraging''.
Swiss bank UBS lost 6.5 per cent and Societe Generale of France dropped 5.7 per cent. The DJ Stoxx bank index fell 1.4 per cent.
Europe's stock markets shrugged off expected monetary policy decisions by The Bank of England, which cut its base rate by 50 basis points to a record low 1 per cent, and the European Central Bank (ECB), which left its key interest rates unchanged.
ECB President Jean-Claude Trichet warned of persistent weakness in coming quarters and economic data painted a grim picture.
The number of US workers filing new claims for jobless benefits jumped to a 26-year high last week, German industry orders slumped 27.7 per cent in December, and Spanish industrial production fell by almost a fifth in December, the largest decline on record.
"Given the development of order intake, production and sales will fall significantly in Q1 compared to Q1 last year and most of the industrial heavyweights will report losses,'' brokerage Steubing said in a note on the German data.
German industrial companies' second-quarter earnings would also be weak, Steubing said.
"It is unclear how much damage the first two quarters of this year will do to the quality of balance sheet i.e. to what levels equity capital will fall,'' Steubing said, adding this meant it would be premature to re-enter the stock market now.
Commerzbank said higher share prices "are only possible once there is more evidence that the recession will come to an end.''
Citigroup said global corporate earnings were "only a quarter of the way through an expected 50 per cent drop''.
"To be able to call a meaningful turn in global equities we need to be closer to the bottom in the corporate earnings cycle,'' Citigroup said, adding that was more likely in 2010.
Fortis Investments was more upbeat, its strategist Joost van Leenders saying: "All the doom and gloom has not pushed markets to below the lows of November 20, 2008, we expect economic stabilisation in the second half of the year, which should be positive for equities.''
Thursday's close leaves the FTSEurofirst 300 index 6.5 per cent above its 2008 low set in late November.
Shares in Unilever lost 6 per cent after the Anglo-Dutch consumer goods group scrapped all its targets due to global economic uncertainty, despite beating forecasts with a 7.3 per cent rise in fourth-quarter underlying sales.
Among gainers, BG Group climbed 10 per cent after the British gas producer reported quarterly profits above expectations and gave a buoyant outlook for future growth.
TUI Travel, Europe's biggest travel firm, rose 8 per cent after the company said it was well positioned to perform in line with its expectations for the current year.
Stock market performance around Europe was uneven with London's FTSE closing flat and Frankfurt's DAX edging up 0.4 per cent while the French CAC lost 0.1 percent and Zurich's tumbled 2.3 per cent.
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