European stocks have closed mostly lower, with the notable exception of Madrid, amid growing speculation the Spanish government will ask for EU help for its stricken banks.

Dealers said concerns over Spain - hit by a drastic three-notch Fitch ratings downgrade on Thursday - and disappointment that the US Federal Reserve plans no immediate new stimulus measures more than offset the impact of China’s first interest rate cut in three years.

The losses, however, were modest, coming after a strong technical bounce earlier in the week and with investors adjusting positions before the weekend, when reports say EU officials may discuss a Spanish aid request.

A modest turnaround on Wall Street also helped as US President Barack Obama said European leaders were well aware of the need to act to solve a eurozone debt crisis which is threatening global growth prospects.

In London, the benchmark FTSE 100 index of top companies closed down 0.23 per cent at 5,435.08 points. In Frankfurt, the DAX 30 slipped 0.22 per cent to 6,130.82 points and in Paris the CAC 40 lost 0.63 per cent to 3,051.69 points.

Madrid bucked the trend, gaining 1.77 per cent amid increasing speculation the government will call on the EU, perhaps as early as this weekend, for help to stabilise its struggling banks.

The market view is that outside help for the banks would take the pressure off Madrid and give the government greater leeway to get the economy growing again and stabilise the public finances.

The European single currency meanwhile gave up most of Thursday’s gains, sliding to $US1.2482 from $US1.2561 late in New York on Thursday. It struck a 23-month low late last week at $US1.2288.

In Asian trade earlier on Friday, markets fell, with investors more focused on Bernanke than Beijing’s surprise rate cut.Tokyo tumbled 2.09 per cent, Hong Kong was down 0.69 per cent, Shanghai lost 0.51 per cent and Sydney fell 1.09 per cent.