Commodity-related shares rebounded on the back of firmer oil and metal prices, helping to limit the losses in other sectors, while the dollar eased in anticipation of a possible hint from the Federal Reserve on the timing of an expected rate hike.
The Fed's Chair Janet Yellen is scheduled to take part in a discussion in London later on Tuesday. Investors expect her to underline her positive view on the US economy, which would support the Fed's forecast of a rate hike this year.
But softer-than-expected US data overnight gave rise to some caution. New orders for key US-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.
“Her words will be scrutinised for any colour about the timing of the next rate hike against a backdrop of mounting concerns over the inflation outlook,” said strategists at Societe Generale in a note to clients.
A number of other top central bank officials are also expected speak at events on Tuesday, including the ECB's Mario Draghi, the Bank of England's Mark Carney and Fed officials Patrick Harker and Neel Kashkari.
The dollar fell 0.1 per cent against a basket of six major currencies, though it hit a five-week high against the Japanese yen.
Fed officials have stuck to their hawkish scripts, which is in stark contrast to the firmly dovish view expressed by Draghi against exiting super easy monetary policy too quickly.
European stocks gave up some of their gains from the previous session, dragged lower by weakness in consumer-related stocks. Autos in particular were hit after a profit-warning from German parts maker Schaeffler.
Firmer metals and oil prices as well as upbeat data on Chinese industrial profits helped mining shares recover recent losses.
Brent crude futures, the international benchmark for oil prices, gained 0.6 per cent to $46.12 per barrel, while US West Texas Intermediate (WTI) crude futures rose 0.6 per cent to $43.61 per barrel.
Gold prices, which tumbled to their lowest level in nearly six weeks on Monday after large sell order sent ripples through the market, steadied, supported by an easing dollar. Spot gold was up 0.4 per cent to $1249.45 per ounce.