The pan-European FTSEurofirst 300 Index provisionally closed lower by 0.4 percent at 1,212.17 points.
After a broad rally on Monday across all sectors, technology stocks led the gains on Tuesday, trading higher by around 2.19 percent.
Technology giant Microsoft confirmed on Tuesday it would pay 5.44 billion euros ($7.2 billion) for Nokia's mobile phone business. The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia's shareholders, regulatory approvals and other closing conditions, according to a statement.
"This is Microsoft's second-largest deal in its history and for Nokia, it's the end of 30 year affair with handsets which once saw the group become the world's dominant maker of mobile phones," Ishaq Siddiqi, a market strategist at ETX Capital, said in a morning note.
In Asia, Japan's benchmark index led Asian stocks higher on Tuesday as dollar-yen flirted with the key 100-level while better-than-expected manufacturing data from the euro zone and China on Monday boosted hopes that the global economy was in recovery mode.
The Vodafone CEO told CNBC the company will use the cash pile to accelerate investment in its own wireless networks and that it plans to return $84 billion in cash and shares to shareholders.
(Read more: Vodafone CEO: We will invest in ourselves)
"We are fortunate enough that the size of the deal itself allows us to return a large percentage to shareholders. But even the remaining 21 percent is large enough to strengthen the company and to allow us to accelerate our strategy," CEO Vittorio Colao said.
News of the deal led to a sell-off in Vodafone, whose shares traded around 5.01 percent lower on Tuesday. Vodafone's performance hurt the FTSE 100, which closed 0.7 percent down. The European telecoms sector was pressured downwards and closed around 1.40 percent lower.
The European auto sector also closed lower, after data showed that new car sales in Germany fell 5 percent in August. This followed the news that French, Italian and Spanish auto registrations dropped sharply in July, with Volkswagen, Ford and Peugeot hit by falling sales.
Spain's jobless numbers held steady in August at 4.7 million, according to data out on Tuesday. Just 31 more people were registered out of work in July. Spain's Economy Minister Luis de Guindos also said on Tuesday that he did not believe further cash injections were necessary for the country's nationalised banks. The IBEX closed up 0.7 percent.
Concerns about a Western military strike on Syria waned as U.S. President Barack Obama struggled to persuade Congress to approve an attack. Congress will now only debate a strike when it returns from its summer recess on September 9, delaying any potential response to the chemical gas attack that is believed to have killed hundreds. In a new twist however, Russia reported that it had detected two ballistic objects in the Mediterranean Sea on Tuesday.
However, U.S. stocks quickly pared their early gains on Tuesday after House Speaker John Boehner said he supported President Obama's call to action on Syria and urged his colleagues in Congress to do the same.
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