European stocks closed modestly higher on Tuesday after the release of economic data from Germany, but the push higher was capped by concerns over the outcome of the German elections, and the potential "tapering" of the Federal Reserve's stimulus program.
The pan-European FTSEurofirst 300 Index closed provisionally 0.2 percent higher at 1,258.1, after the release of German business sentiment, which showed a rise in September.The Ifo index rose to 107.7 in September, up from 107.6 in August. Analysts polled by Reuters had forecast a rise to 108.2 this month, however.
Technology stocks lead markets higher, with positive sales news for Apple, and reports that Blackberry was edging closer to being bought out. Apple's German-listed shares closed around 1.1 percent higher on the news that it had sold a record 9 million new iPhones over the weekend, while Blackberry's Frankfurt-listed shares closed up about 5.2 percent.
In Germany, newly re-elected Chancellor Angela Merkel has started negotiations with her center-left rivals to form a "grand coalition" between her conservative bloc and the Social Democrats (SPD). Her party notched up its best election result in more than two decades on Sunday, but fell short of an absolute majority.
(Read More: Merkel wins: And now for the hard part)
Investors also continued to fret about the future of U.S. monetary stimulus which weighed on Wall Street and sent Asian markets lower overnight. A raft of comments from Federal Reserve officials in Monday's session added to investor confusion as to when the central bank will taper its monthly $85 billion bond-buying program.
New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart took a dovish tone at the start of the week. Dudley said he supported the Fed's surprise decision to delay tapering, given the lack of economic momentum. Dallas Fed President Richard Fisher, however, was more hawkish, indicating that he would have opposed the inaction if he had a vote.