European shares closed flat on Tuesday as Deutsche Bank shares weighed heavily on Germany's DAX Index after rumors that the German financial sector regulator had asked it to simulate a split of its investment banking and retail operations.
The FTSEurofirst 300 Index finished flat as the DAX regained some ground, after falling 1.2 percent, to close 0.6 percent lower provisionally. Deutsche Bank shares also saw some buying after falling 3 percent. Deutsche Bank closed 1.47 percent lower.
According to reports, Germany's banking regulator BaFin asked Deutsche Bank, as well as Landesbank Baden-Wuerttemberg, to simulate a split between their investment and retail units. BaFin was unable to comment on the reports, but told CNBC that it is one of their tasks, as a banking supervisor, to assess the impact of new regulatory proposals.
"With these impact assessments we want to learn more about the effects of the relevant regulation. Thereby we also use data we gain from supervised banks," BaFin told CNBC.
Deutsche Bank declined to comment on the rumors. The bank also declined to comment on speculation that it was likely to announce a profit warning.
"It's been mooted before. It's only a simulation but obviously anything to do with banks makes it quite sensitive," Mark Priest, a trader at ETX Capital told CNBC, referring to rumors of the regulator's action.
Priest said Deutsche Bank shares were selling-off because of the rumors and added that further downward moves could be seen if the simulation is rolled out to other banks as well.
Elsewhere in Europe, European Union finance ministers are set to give the go-ahead to a levy on trading. Germany and France are among a group of 11 countries that will be allowed to start work on a financial transactions tax. Britain's prime minister, David Cameron has criticized the move and said the levy would deter business transactions taking place in London, the region's biggest financial center.
Ireland and Portugal have asked the euro zone to extend the repayment terms of their bailouts, according to Irish finance minister Michael Noonan. On Monday, he told reporters that he and his Portuguese equivalent had made a joint request for an extension.
At a bond auction in Spain on Tuesday, short-term debt yields fell to their lowest since March. A new issue of a 10-year bond also received a deluge of offers, as the yields on the benchmark debt remained steady. Spanish stocks moved off their lows after the bond auction.
Germany also received good news with the release of data which showed investor sentiment was at its highest since March. The ZEW index rose sharply to 31.5 points for January, up from 6.9 points in December.
In stocks news, France-based energy company Alstom released third-quarter sales figures which showed a slight rise; shares closed 0.55 percent higher.
U.K.-based brewer SAB Miller reported trade figures highlighting slower demand for beer in China because of a cold winter. But overall revenues were up and the shares closed 1.33 percent higher.
Fresnillo announced fourth-quarter output data on Tuesday, forecasting a stable outlook for silver production in 2013; despite this shares closed down 2.82 percent.
German engineering firm Siemens reported first-quarter earnings on Tuesday that topped forecasts; shares climbed 0.49 percent.
Tom Enders, CEO of EADS said at a media event in Paris that the firm had achieved a very significant improvement in revenue and operating profit last year; shares closed 0.99 percent higher.
Rightmove shares rose after UBS upgraded the stock and raised its price target on the company. Shares in the property website firm closed 2.83 percent higher.
Reports on Tuesday said that coal miner Bumi was unable to substantiate any claims of wrongdoing at its Indonesian arm in an independent probe, amid escalating tensions between the firm's owners. Shares in the U.K. listed company closed 2.08 percent lower.
Ocado have announced that veteran retail businessman Sir Stuart Rose, who used to head Marks & Spencer, has been named as the new CEO at the online grocer. Shares closed up 6.26 percent on the news after falling in yesterday's session.