European shares fell on Friday, and are on track to end the week lower, after euro zone leaders imposed further conditions on Greece to receive its next rescue package and the country's far-right leader said he could not vote in favor of the bailout deal.

Confidence among investors sagged because if an agreement is not reached on the reforms needed for Greece to receive the new bailout a messy default could occur which could have a ramifications across markets.

Europe is causing confusion in the market and the investor confidence that a deal was going to be agreed on Greece has eased, said Bob Parker, senior adviser at Credit Suisse.

If there is no Greek deal then there could be chaotic default and the write downs that banks and investors would have to take would increase.

Parker thought investors would remain nervous for the first quarter as peripheral euro zone countries and banks refinance, but he said the second half could see gains of 5-8 percent if corporate results improved and central banks provided support.

Banks, many of them exposed to euro zone sovereign debt, put in a mixed performance.

Commerzbank (CBKG.DE), one of the banks with a large amount of the region's debt, fell 3.5 percent to feature on the worst performers' list on the Greek uncertainty.

The German bank was also in overbought territory after gaining 14.8 percent in the past three days as sentiment towards Greece improved early in the week and following strong results from its Polish unit BRE Bank BREP.WA.

Its relative strength index was at 70.9. A score of 70 and above is considered overbought by technical analysts.

Barclays (BARC.L), in contrast, was among the top climbers, up 4 percent, recovering from initial falls as a robust performance from the British bank's retail and corporate division offset weak figures in investment banking.

Other results were a reminder of the impact that harsh austerity measures were having on companies.

Galp Energia (GALP.LS) fell 2.7 percent after it said it expected Portugal's recession and austerity drive to continue to weigh on oil product sales.

By 1245 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.9 percent at 1,064.08 points after being as high as 1,073.49.

It is on track to end the week 0.9 percent lower, halting the sharp gains made in the previous week.

Credit Suisse said it was too early to go into stocks in Southern Europe as there was still need for further clarification on Greece and Parker said their strategy was to overweight large caps in Northern Europe.

The Euro STOXX 50 volatility index .V2TX, a key gauge of Europe's investor 'fear,' jumped 4.9 percent, showing investors were still apprehensive about the market. The higher the volatility index, the lower investor appetite for risk.

DATA MIXED

The FTSEurofirst 300 index is up more than 20 percent since September 2011 as economic data in the United States has shown signs of improvement. On Friday, however, weak Chinese imports data unsettled investors, and particularly weighed on mining stocks.

Miners, whose growth is correlated to strong economic performance, were the worst sectoral performers after Chinese imports in January fell to its lowest since August 2009, raising concerns that demand in the world's second-biggest economy may be weaker than previously thought.

The STOXX Europe 600 Basic Resources index .SXPP lost 1.5 percent. It has risen 38.9 percent since October 2011 buoyed in part by positive economic data.

With recovery in the U.S. and the current European issues occupying the attentions of investors, one wonders whether markets have been ignoring what is going on in China, said Rebecca O'Keeffe, head of investment at Interactive Investor.

This recent risk rally, which has seen most markets rise 20 percent over the last few months, has been based mainly on the recovering U.S. economy. It would be ironic if China caught a cold, just as the U.S. starts to recover.