European shares closed lower on Tuesday as markets await the outcome of a critical vote in Cyprus to tax bank deposits.
The FTSEurofirst 300 Index was provisionally closed down 0.4 percent.
The Cypriot government was scheduled to debate the controversial plan to tax bank deposits on Tuesday afternoon before voting on the plan later in the day. Ratifying the vote is crucial to Cyprus receiving a 10 billion euro bailout from the European Union and International Monetary Fund (IMF).
The international lenders now want Cypriot banks to scrap plans to tax smaller savings accounts and instead impose a 15.6 percent tax on deposits over 100,000 euros. The move is likely to limit the impact on Cypriot bank account holders but would hit foreign depositors.
Banks in Cyprus will remain shut on Tuesday and Wednesday as a precautionary measure.
An initial proposal sparked concerns about the stability of euro zone financial institutions and sent jitters across global markets on Monday.
Banks were sharply lower again on Tuesday with Societe Generale down 1.57 percent, Mediobanca down 1.46 percent, Deutsche Bank down 1.18 percent and Lloyds down 1.33 percent. Stocks in Greece took a tumble with the National Bank of Greece lower by 7.87 percent, Bank of Piraeus down 8.42 percent and Alpha Bank shares sinking 5.73 percent.
"The euro crisis is gaining momentum again," Tobias Blattner, European economist at Daiwa Capital said in a morning note.
"With 2 (year) Bund yields re-approaching negative territory at fast pace. Indeed, lots of uncertainty surrounding the situation in Cyprus continues to persist. Most pressingly, of course, there currently seems no majority in parliament to pass the crucial vote on the country's bailout package this afternoon."
In what will be seen as a test of investor nervousness over the euro zone, Spain is hoping to sell up to 4 billion euros in 3 and 6-month paper early on Tuesday – a precursor to a longer-term bond auction on Thursday. The Spanish IBEX was lower by 0.34 percent in morning trade on Tuesday.
In Asia, markets recovered ground after the previous day's sell-off on hopes that Cyprus's vote on the bank deposit levy will pass through parliament.
U.K. monthly inflation figures were released on Tuesday showing a slight increase to 2.8 percent form 2.7 percent. Sterling traded slightly higher on the news. German ZEW, an indicator of economic sentiment, was released later on Tuesday showing a rise to 48.5 points in March from 48.2 points in Febuary. The figures meant it had reached a fresh 3 year high and European stocks rose on the news before falling back lower.
New car registrations for the EU fell to a new low in February, data released on Tuesday showed. Shares of Fiat fell 1.9 percent, BMW (who released earnings on Tuesday) were down 0.84 percent and Daimler down 0.67 percent.
Goldman Sachs cut its price target for miner Rio Tinto on Tuesday and reduced it to a "sell" rating, shares in the London-listed firm fell 3.17 percent.
CEO Warren East will retire from Arm Holdings, a chip maker for Samsung and Apple, it was announced on Tuesday. Shares of the firm traded 1.41 percent lower.