Relentless worries over a possible Greek exit from the euro zone checked European stock markets on Friday after a brief rally following sharp losses earlier in the week, and traders said markets would remain volatile over the coming month.
The FTSEurofirst 300 index initially rose some 0.8 percent, but then fell into negative territory after Belgian Deputy Prime Minister Didier Reynders said central banks and companies would be making a grave error if they were not preparing for Greece to leave the euro zone.
The index, which had fallen to a five-month intraday low of 964.66 points on May 21, was down 0.3 percent at 979.81 points by 1105 GMT.
Traders said that in spite of a two-day rally which occurred as bargain hunters sought out beaten-down stocks, the underlying outlook remained negative.
Europe is in a recession, China is slowing down and the United States is slowing down as well, said Michel Juvet, chief investment officer at Swiss bank Bordier & Cie.
Juvet said his firm had cut its European equities exposure earlier this year and was considering re-investing in the sector, but would hold off at present since he felt equities markets could decline further in the near term.
Juvet said he would wait until the European STOXX 600 index fell to below the 220 mark from its current level of around 240 points before buying back into European equities.
Royal London Asset Management's European equities fund manager Neil Wilkinson also said he had been waiting on the sidelines this week, despite brief rallies in stock markets, due to lingering uncertainty over the Greek crisis.
I haven't had any trades in the market over the last couple of days. Markets will be volatile over the next month, he said.
HOPES OF NEW ECB INTERVENTION
Greece holds fresh elections on June 17 after voters rejected austerity measures imposed upon it by the European Union and International Monetary Fund as part of an earlier bailout deal for the debt-stricken country.
However, many fear that Greece will have to exit the euro zone, which could cause major disruption to world financial markets and other European economies.
Some traders cited speculation that the European Central Bank could step in to prop up markets over the coming weeks, either through a rate cut or by injecting fresh liquidity into the financial system.
On Friday, key euro zone bank-to-bank lending rates fell to new two-year lows, dragged down by the ECB's recent deluge of ultra-cheap bank loans and growing expectations it will have to cut euro zone interest rates again in the coming months.
Some investors have used this month's decline in European equities markets to buy stocks on the cheap, hoping to make a tidy profit if prices recover over the next few weeks.
Royal London's Wilkinson said he had bought some shares in German health company Fresenius SE over the last month, while ClairInvest fund manager Ion-Marc Valahu bought shares in Italian utility Enel and oil major Eni .
I'm not taking big positions but at some point you have to step in, said Valahu.