U.S. equities gained after data showed initial jobless claims fell to their lowest in 14 years. In addition, St. Louis Federal Reserve Bank President James Bullard said the Fed may keep up its bond-buying stimulus, since inflation expectations had diminished.
"The market was technically extremely 'oversold' and investors were looking for an excuse to jump back into the market," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
"Bullard’s comments, though a repetition of his earlier statements, provided an opportunity to investors to close some of their short positions before going into the weekend. We could build tomorrow on the recovery that we saw today."
The FTSEurofirst 300 index of top European shares ended 0.5 percent lower at 1,245.78 points after falling as much as 2.9 percent to 1,215.62 points, the lowest since September last year. The index has fallen about 13 percent in four weeks.
The relative strength index (RSI) for the index fell to 19.6 on Thursday, the lowest in more than three years. A level below 30 is seen technically as "oversold" and often attracts buyers.
"It’s too early to talk about a major bear market. We will probably be looking for trading buy opportunities in the near-term," said John B Smith, senior fund manager at Brown Shipley.
Analysts said that cyclical stocks, which are more sensitive to economic conditions, would remain under pressure as global growth concern persisted. Weaker oil prices may further damage energy companies, they said.
The euro zone's banking index fell 2.1 percent, the insurance index was down 1.3 percent and the European oil and gas index dropped fell 0.6 percent.
Across Europe, Britain’s FTSE 100 ended 0.3 percent lower, Germany’s DAX rose 0.1 percent and France’s CAC fell 0.5 percent. Italy’s FTSE MIB fell 1.2 percent and Portugal's PSI 20 was down 3.2 percent.
Other indicators showed that investors were still jittery.
The Euro STOXX 50 Volatility Index, a widely used measure of investor risk aversion known as the VSTOXX, surged to 31.5, its highest since mid-2012, signalling a rise in risk aversion. The index traded at around 19 only a week ago.
A ratio of the number of bearish 'put' options versus bullish 'call' options on the Euro STOXX 50 index also rose to 2.3, its highest since August 2013. A ratio above 1.5 suggests investors are turning cautious, buying 'puts' as a hedge for their equity portfolios in case of a market sell-off.
Among individual movers, Getinge slumped 14.9 percent after trimming its sales growth forecast for the year. Air France-KLM rose 6.5 percent on news that its pilots unions had reached an agreement on the airline's low cost unit Transavia France.
(Editing by Larry King)
By Atul Prakash