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Europe closes higher on US debt deal optimism, Burberry tumbles

European equities closed higher on Tuesday, as expectations of an imminent debt deal in the U.S. encouraged global market sentiment.

The pan-European FTSEurofirst 300 Index closed provisionally higher by 0.9 percent on Tuesday. The U.K.'s FTSE 100 closed higher by 0.7 percent, the French CAC 40 closed higher by 0.8 percent and the German DAX closed up 1 percent.

House Speaker John Boehner said the Republicans were still involved with talks with House Democrats, but no deal has emerged so far on Tuesday.

Earlier, House Republican leaders proposed a plan that would fund the government past year-end and allow the Treasury Department to borrow normally until February 7. However, Senate Majority Leader Harry Reid criticized the proposal, saying it would not pass through Senate.

The debate came with the partial government shutdown now in its third week, and less than two days before the Treasury says it will be unable to continue borrowing.

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Back in Europe, German Chancellor Angela Merkel's conservative alliance said it was likely to hold a third round of talks with the Social Democratic Party later this week, with regards to forming a coalition government.

Meanwhile, German economic sentiment rose more than expected in October, on signs the euro zone crisis may be waning, a survey by the ZEW economic think tank showed. Its poll rose to 52.8 in October from 49.6 in September, the highest level since April 2010.

"Today's ZEW index gives the impression that analysts believe in the invulnerability of the German economy...The new dark clouds coming from the other side of the Atlantic have not yet blacked out analysts' optimism," said Carsten Brzeski, senior economist at ING.

In the U.K., inflation remained at 2.7 percent in September, according to the Office for National Statistics, going against economists' forecasts which had indicated a slight tick down to 2.6 percent.

In stock news, Burberry Group was the sharpest faller on the FTSE, after it announced that Chief Creative Officer Christopher Bailey would replace long-standing Chief Executive Angela Ahrendts, who is heading to Apple. The company said Ahrendts would step down by mid-2014, after which Bailey would be appointed to the dual role. The stock closed provisionally down by 7.6 percent.

(Read more: Ahrendts leaves Burberry for Apple)

Follow us on Twitter: @CNBCWorld

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