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Europe shares close lower; Fed's Yellen in focus

European shares fluctuated on Tuesday before ending the day lower, with comments from U.S. Federal Reserve Chair Janet Yellen hitting sentiment.

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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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US banks release earnings

The pan-European FTSEurofirst 300 fluctuated throughout the day before closing down around 0.3 percent at 1,359.97, after U.S. stocks lost steam.

It came as Yellen told Congress, during her semi-annual testimony, that the central bank could hike rates sooner than expected if the economy continues to improve.

Capital Economics analysts said Yellen had "stuck to the script" but warned "this may soon change".

Earlier in the day, European markets had been boosted by strong third-quarter earnings from U.S. banking bellwethers Goldman Sachs and JPMorgan Chase.

Goldman Sachs reported earnings that easily beat expectations, coming in at $4.10 a share on revenue of $9.13 billion. JPMorgan Chase also surprised to the upside, posting earnings of $1.66 per share, up from $1.48 a share in the year-earlier period.

Weak German data

Earlier in the day, markets digested weak data from Germany. The country's ZEW economic sentiment indicator fell short of expectations, coming in at 27.1 points in July, versus 29.8 in June.

"Latest data releases have increased concerns about a stagnation of the German economy in the second quarter," Carsten Brzeski, senior economist at ING, said in a note. "This is not only bad news for Germany but for the entire euro zone."

Elsewhere, Italy's year-on-year inflation figures for June were confirmed at 0.2 percent on Tuesday morning. Meanwhile, the U.K.'s figure came in at a better-than-expected 1.9 percent, sending the pound surging higher against the dollar.

Read MoreUK inflation beats forecasts as food costs rise

In addition to Yellen's two-day testimony on Capitol Hill, Bank of England Governor Mark Carney appeared in front of U.K. lawmakers for a financial stability discussion. He said the Bank was not currently contemplating additional measures to cool the housing market and reiterated that he did not know when interest rates would be hiked.

BOJ keeps policy steady, trims 2014 growth target

Back in the U.K., Prime Minister David Cameron announced wide-ranging changes to the lineup of his decision-making body, the Cabinet. Philip Hammond has been named as the new foreign secretary and Michael Gove has been moved from education secretary to Commons chief whip.

Read MoreBritish cabinet reshuffle starts with Hague

Portugal stocks fall

Shares of Portuguese bank Espirito Santo ended the day around 14 percent lower amid ongoing concerns about its parent companies and its capital buffer. Late in the day, Reuters also reported that Rioforte, a holding company for the bank, was preparing to file for creditor protection.

Portugal's PSI Index 20 closed around 1.13 percent lower, weighed down by shares of the bank.

The technology sector saw some of the largest losses during the session, after shares of Software AG plummeted. The German company said it was cutting its 2014 sales outlook due to project delays. Shares closed nearly 19 percent lower.

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