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Europe shares close lower; banking stocks slide

European shares ended the day lower on Tuesday, dragged down by banking stocks amid reports that more lenders had begun settlement talks with U.S. authorities.

The pan-European FTSEurofirst 300 index closed down around 1.2 percent, with banks leading the way. Britain's FTSE ended the day down around 1.2 percent, Germany's Dax slid 1.3 percent and France's Cac closed around 1.3 percent lower.

German lender Commerzbank fell around 5.7 percent following reports that it was in settlement talks with U.S. state and federal authorities over its dealings with countries blacklisted by the U.S. Shares in German rival Deutsche Bank were also hit, ending the day approximately 2.2 percent lower.

Read MoreUS scrutiny for banks shifts to Commerzbank and Germany

Earlier in the day, data revealed that U.K. industrial output fell 0.7 percent month-on-month in May, below forecasts of a 0.2 percent rise. It comes after weak industrial production data for Germany on Monday, which stoked fears of a slowdown in Europe's largest economy.

Earnings caution

In the U.S., meanwhile, stocks skidded lower on Tuesday, extending the prior day's drop from last week's records.

Investors on both sides of the Atlantic are braced for quarterly earnings, with aluminium producer Alcoa due to report second-quarter results after the U.S. market close. Investor caution ahead of the earnings season led Asian shares mostly lower.

Read MoreBellwether or not,Alcoa signals start to earnings

Back in Europe, traders are looking for profit growth from companies to give them a reason to keep buying stocks and push benchmark indexes higher. Firms listed in the pan-European Stoxx 600 are predicted to grow 17.7 percent from the second quarter in 2013, according to Thomson Reuters data, with nine of the index's 10 sectors set for an improvement.

Read MoreWhy this bullish pro sees big market drop soon

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FTSE
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DAX
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CAC 40
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IBEX 35
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Stocks news

Air France KLM shares plunged over 11 percent after the group cut its profit guidance, citing overcapacity. Two weeks ago Lufthansa also issued a profit warning.

Read MoreAir France cuts guidance, overcapacity hits prices

Italian insurer Generali ended the day over 3 percent lower after Italy's state lender, Cassa Depositi e Prestiti (CDP), sold a 2 percent stake in the group.

Belgian bank KBC Group said it would have to set aside at least 162 million euros in the second quarter due to the impact of a new foreign-exchange law in Hungary. Shares in the group fell more than 4 percent.

Read MoreM&S non-food sales hurt by new website

Marks & Spencer shares, meanwhile, fell 1.3 percent after the group reported first-quarter earnings. General merchandise sales fell for a 13th consecutive quarter, with the firm blaming the "settling in" of its new website.