European shares closed higher on Tuesday after a survey showed a sharp improvement in German investor and analyst sentiment.
The FTSEurofirst 300 Index provisionally closed up 0.4 percent 1,139.17 points after the ZEW index in Germany rose into positive territory for the first time since May, the figure for this month was 6.9 points compared to -15.7 in November.
"It is possible that sentiment was buoyed this month by the prospect of debt relief for Greece," Jennifer McKeown, senior European economist at Capital Economics said in a research note.
"But with the debt buyback so far not going as well as had been hoped and troubles in Italy rebuilding, concerns about the euro-zone's periphery are likely to weigh on sentiment in January and beyond."
European shares initially opened cautiously with the ongoing political uncertainty in Italy. Prime Minister Mario Monti announced on Saturday he would resign before his term ends, spooking investors. But the Financial Times reported on Tuesday that the the incumbent is now in talks with centrist groups, with the possibility of standing in next year's elections. The Italian FTSE MIB Index closed firmly in the red on Monday but was higher by 1.24 percent on Tuesday. Italian banks, such as BMPS and Banco Popolare, which had seen a large sell-off on Monday, also saw gains.
In stocks news, the FTSE 100 was dragged down by U.K.-based banking giant HSBC, Europe's biggest bank, which announced it is to pay $1.9 billion to U.S. authorities to settle accusations that its lax money-laundering controls allowed Mexican drug cartels to launder billions of dollars; shares fell 0.33 percent.
In earnings, online clothing retailer Asos released first-quarter trade figures showing continued healthy sales; shares were 0.65 percent higher. Carpetright announced first-half earnings that met with expectations; shares rose by 2.03 percent.
Also in the U.K., technology firm Pace was in talks to buy Motorola's set-top box which is owned by Google, according to media reports.
Peter Clarke, the chief executive officer of hedge fund firm Man Group announced on Tuesday that he will step down, bowing to shareholder pressure over the slow progress of the company's revival.