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In Europe, the F TSE 100 index of leading British shares was down 16.10 points, or 0.3 percent, at 5,297.71 while Germany's DAX fell 2.64 points to 6,139.51. The CAC-40 in France was 4.55 points, or 0.1 percent, higher at 3,605.12.
On Wall Street, the Dow Jones industrial average was down 23.99 points, or 0.2 percent, at 10,298.31 soon after the open while the broader Standard & Poor's 500 index was down 5.25 points, or 0.5 percent, at 1,088.42.
All eyes in the markets are on the results of the tests, which are due at 1600 GMT (Noon EDT).
The goal of the tests is to allay market fears that the banks are in trouble in the wake of the synchronized global recession and the sovereign debt crisis that has taken hold of Europe this year.
Though most of the banks are expected to get the all-clear, there is a great deal of market concern that the tests are not as stringent as they should be, or as rigorous as those applied in the United States around a year ago.
"With the results of the European bank stress tests due after the close, and bearing in mind the gains seen over recent days it would not be a surprise to see a cautious market to finish the week off," said Anthony Grech, head of research at IG Index.
The euro also gave up early gains as the focus turned to the results. By mid afternoon London time, the euro was down 0.5 percent at $1.2825.
Earlier, data showing that Europe's economy is growing faster than many have predicted helped shore up market optimism and had given the euro a brief boost.
Particularly encouraging was the Ifo Institute's latest monthly assessment of German business confidence. Its main index rose to 106.2 points
- far higher than expected - from 101.8 points in June.
"Against the background of double-dip concerns in the U.S., uncertainty over the European banks stress tests, and lingering concerns over the management of the eurozone sovereign debt crisis, the German IFO index managed to post its strongest increase in Germany's modern history," said Frederik Ducrozet, an economist at Credit Agricole.
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 Meanwhile, the pound enjoyed a big rally after British data showing the U.K. economy growing by a massive quarterly rate of 1.1 percent in the April-June quarter, nearly double market expectations. The pound was up 0.7 percent at $1.5368.
"While fears that the economy will struggle in the second half on the back of austerity measures will persist, it seems the UK economy is in far better shape to face the cutbacks than had been expected," said Jane Foley, research director at Forex.com.
Earlier, nearly all Asian stock markets advanced after Wall Street soared Thursday after Caterpillar Inc., Microsoft, UPS Inc. and other companies beat analysts' forecasts. A better-than-anticipated report on housing also reassured investors that the recovery, while uncertain, is continuing.
Japan's Nikkei 225 stock average jumped 2.3 percent to close at 9,430.96 while Hong Kong's Hang Seng index rose 1.1 percent to 20,815.33. South Korea's Kospi advanced 1.3 percent to 1,758.06, and Australia's S&P/ASX 200 gained 1.9 percent to 4,458.40.
Benchmark crude for September delivery was down 65 cents at $78.65 a barrel in electronic trading on the New York Mercantile Exchange. The contract surged $2.74 on Thursday to settle at $79.30, a 10-week high alongside the rally in stocks.
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Associated Press Writer Pamela Sampson in Singapore contributed to this report.
[Associated
Press; By PAN PYLAS]
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