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Europe stocks close lower, as US budget concerns weigh

European shares closed lower on Wednesday, with investor sentiment still subdued as concerns weighed about the U.S. debt ceiling.

The pan-European FTSEurofirst 300 Index provisionally closed slightly down by 0.1 percent to 1,256.70 points, having pared earlier losses.

The French CAC 40 also closed down 0.1 percent, while Britain's FTSE 100 was provisionally down 0.3 percent and Germany's DAX closed flat.

Investors looked ahead to a Monday deadline which looms for the U.S. Congress, as it seeks to approve a resolution that would keep the government funded for a short time while it debates whether to raise the debt ceiling.

U.S. stocks crawled along the flatline on Wednesday, following the latest home sales report, and as the House of Representatives was set to meet to debate the debt ceiling.

Sentiment was also curbed as investors continue to guess when the U.S. Federal Reserve might "taper" its $85 billion-a-month stimulus program.

New York Fed President William Dudley told CNBC on Tuesday that he supported the Fed's surprise decision at last week's policy meeting to maintain the quantitative easing program, contradicting earlier hawkish comments from Dallas Fed President Richard Fisher.

(Read More: Congress' shutdown fight is nothing. Stay tuned)

In global news, U.S. President Barack Obama on Tuesday cautiously welcomed overtures from Iran's new president Hassan Rouhani as the basis for a possible nuclear deal and rapprochement between the countries. The leaders did not have time to meet in person at the annual gathering of world leaders at the U.N. General Assembly, however.

In Europe, newly re-elected German Chancellor Angela Merkel's conservative bloc has confirmed that it is looking to form a grand coalition with its rival Social Democratic Party, shunning the Green party as a possible coalition partner.

In France, the government presented its budget for 2014. The budget includes a 15 billion euro ($20.2 billion) cut in government spending next year and a 3 billion euro rise in taxes, with many of those increases hitting households and consumers.

Responding to the announcement, analysts warned it could damage consumer confidence and threaten the economy's chances of recovery.

(Read More: Will business be the winner in France's 2014 budget?)

German consumer confidence rose to its highest level in six years heading into October, data showed on Wednesday. The index released by think tank GfK showed a rise to 7.1, against expectations of 7.0.

In stocks news, shares in Deutsche Bank and Commerzbank closed lower, as investors fretted over their slow progress in fixing their balance sheets.

Shares of ThyssenKrupp closed higher by 3.74 percent after Swedish activist shareholder group Cevian said it was looking to increase its holding in the German steelmaker.

Shares of Carnival fell 6.73 percent in their second session of decline, after Morgan Stanley downgraded the cruise company to an "underweight" on Tuesday.

Furthermore, a JPMorgan downgrade caused Tesco to fall 3.5 percent. The bank argued that the U.K. food retail industry had structural problems and that Tesco would be the worst impacted.

(Read More: UK retailer Tesco launches cut-price tablet)

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