By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets extended losses into a fourth straight day on Friday, as investors worried about the prospect of a reduction in U.S. Federal Reserve stimulus and political uncertainty in Greece.

The Stoxx Europe 600 index dropped 1.2% to 280.40, closing at the lowest level in 2013.

On a weekly basis, the index sank 3.7%, marking a fifth straight week of losses.

On Thursday, the benchmark posted its largest one-day percentage drop since November 2011, hurt by comments from the U.S. Fed that it could start scaling back its $85-billion-a-month asset purchases later this year, as long as data continue to support the central bank's forecast.

Global stock markets climbed to multiyear highs earlier in the year largely due to central bank liquidity, and investors fear a reduction in bond purchases will create market turmoil.

Guy Foster, head of portfolio strategy at Brewin Dolphin, said the Fed worries continued to weigh on investors' minds on Friday, with some longer-term investors adjusting their weighting.

"It was clearly a surprise with the hawkish statement from the Fed and then we had another disappointment from China a few hours later in terms of the HSBC purchasing managers' index," he said.

"What was really surprising about what Bernanke said, was that we didn't think we would lay out a time table. But he did lay out a time table, but said it was going to be data driven. The market has really focused on the fact that asset purchases will end and ignored that it's likely to be data driven," he added.

"What the market would like to see now is some modestly bad news from the U.S. economy."

U.S. stocks traded mixed on Wall Street.

Greece in the spotlight

Back in Europe, Greece stocks slumped after the Democratic Left party reportedly pulled out of the coalition government amid disagreement with Prime Minister Antonis Samaras' abrupt decision to close the state broadcaster, ERT, last week.

"Although the defection of the Democratic Left still leaves the Government's traditional core intact, its majority is razor thin with 153 seats in a parliament of 300. The government is now just a few defections away from collapse but still has plenty of hard choices to make," Foster said in emailed comments.

Adding to worries about Greece, the International Monetary Fund threatened to suspend aid payments to the struggling country, unless euro-zone leaders move to plug a gap of 3 billion to 4 billion euros ($4 billion to $5.3 billion) in the country's rescue program, the Financial Times reported late Thursday. The report said the gap stemmed from central banks refusing to roll over Greek bonds and that Athens wasn't to blame.

A senior IMF official told CNBC on Friday that the suspension talk was "premature" and that the fund is still having discussions with Greece.

The Athex Composite lost 6.1% to 830.01, with National Bank of Greece SA down 11%.

Movers

Germany's DAX dropped 1.8% to 7,789.24, and closed 4.2% lower on the week.

SAP AG dropped 2.7% in Frankfurt after U.S. peer Oracle Corp. (ORCL) late Thursday reported sales below analysts' expectations.

France's CAC 40 index slid 1.1% to 3,658.04 and closed out the week 3.9% lower. Banks posted some of the biggest losses, with shares of BNP Paribas SA down 2.6%, Credit Agricole SA 2.3% lower and Société Générale SA off 2.1%.

Banks were also lower in the U.K., where Royal Bank of Scotland Group PLC (RBS) gave up 7.2% and Barclays PLC (BCS) lost 2.3%.

The U.K.'s FTSE 100 index lost 0.7% to 6,116.17. The index dropped 3.1% on the week.

Outside the major indexes, TalkTalk Telecom Group PLC gave up 6% after analysts at Citigroup cut the firm to sell from neutral.

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