European shares closed lower on Tuesday as the partial U.S. government shutdown, now in its eighth day, continued to weigh on investor sentiment.
US debt fears continue
The FTSEurofirst 300 Index closed provisionally down 0.7 percent to 1,232.61 points, with Britain's FTSE 100 closing down 1 percent, a fresh three-month low, as data showed U.K. retail sales growth slowed for a second month in September.
The specter of the U.S. debt ceiling continued to weigh on European markets. U.S. stocks extended their losses for a second session on Tuesday, with the Dow and S&P 500 at their lowest levels in nearly a month, as traders continued to focus on developments in Washington.
The impasse between Democrats and Republicans over the federal budget continued on Monday, with little headway made between the two parties on how to break the deadlock.
Meanwhile, yields on one-month Treasury bills continued to head higher this week, a sign that investors are getting increasingly nervous about the prospect of the government defaulting on its debt obligations. Congress and the White House must agree on raising the $16.7 trillion debt limit on government borrowing before October 17, if the country is to avoid defaulting on its debt later this year.
"We continue to expect no solution this week, and the ongoing government shutdown means that today's U.S. data will once again be postponed," said Chris Scicluna, an economist at Daiwa Capital.
In Europe, a report by the Financial Times said that EU regulators who are overseeing next year's stress tests on euro zone banks are preparing to penalize lenders that continue to rely on the European Central Bank's cheap funding scheme, known as the long-term-financing operation, or LTRO.
(Read More: Penalties planned for banks receiving ECB aid)
Also in the U.K., a survey by the Royal Institution of Chartered Surveyors showed that British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high.
Italian stocks higher
In stocks news, shares in Italian lender BMPS were higher, closing up 1.73 percent, after it unveiled a new recovery plan on Monday, including job cuts, designed to help restore profitability at the bank.
Belgacom shares received a bounce, closing up 4.85 percent, after the telecoms firm received an upgrade by Citi.
Shares of medical technology firm Getinge closed down 10.34 percent after the company issued a profit warning on Tuesday. The stock led fallers in the STOXX Europe 600 Healthcare index, which closed down 0.9 percent. Drugmakers Novartis and GlaxoSmithKline also weighed after their price targets were cut by JP Morgan and Berenberg.