European shares ended lower on Tuesday on renewed worries over the outlook for the U.S. economy, but a late recovery in recently hammered banking shares helped the market close off the session's lows.
It was the market's fourth retreat in five sessions as weak consumer confidence data and a profit warning by U.S. package delivery companyUnited Parcel Service added to the gloom.
The FTSEurofirst 300 index of top European shares ended 0.7 percent lower at 1,214.25 points, its lowest close since mid-March.
The index has lost around 9 percent so far this month.
The Conference Board said its overall monthly measure of consumers' mood declined to 50.4 this month -- the lowest since 47.3 in February 1992 -- from a revised 58.1 in May.
Economists on Wall Street had been expecting a reading of 56.4, according to a Reuters poll.
"Worries over a slowdown have spread from financial market professionals to people in the real economy, and it confirms what the market has been fearing for a while," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.
"The real danger is to face a clear economic downturn and earnings erosion, without having room for interest rate cuts because of high inflation," he said.
An interest rate decision by the U.S. Federal Reserve is expected on Wednesday.
The Fed, which has slashed interest rates by 2.25 percentage points so far this year, is expected to keep rates steady at 2 percent.
But the focus will be on the Fed's statement, as investors look for insight on the outlook for rates.
Earlier this month, the European Central Bank took the markets by surprise by leaving the door open to a rate hike in July to keep inflation at bay.
Banking stocks staged a late recovery on Tuesday, tracking gains by their U.S. peers on Wall Street.
Royal Bank of Scotland gained 2.2 percent, Barclays rose 3.7 percent and BNP Paribas added 2 percent.
The DJ Stoxx European banking index is down about 31 percent in the year-to-date on investor concerns over the impact of a credit crisis on the banks' balance sheets.
Shares in auto and tire makers were among the biggest losers in Europe, with Renault down 1.6 percent, BMW down 3.4 percent, Porsche down 3.8 percent and Michelin down 0.6 percent, on fresh fears over raw material prices, ongoing worries over the outlook for the U.S. market, and the rising euro.
A strong euro makes it more expensive for car makers to export from Europe, and reduces U.S. revenues when translated into euros.
"Recent news has not been good and the explosion of raw material prices, especially oil, is causing the fall," Ixis analyst Georges Dieng said.
Toyota Motor said on Tuesday it would be very difficult to hit its annual U.S. sales target, hinting that it could cut its forecast when it reviews its estimates next month.
Cooper Tire & Rubber said late on Monday it has reduced production in its North American facilities during the second quarter to counter reduced tire demand and projected shortages of certain raw materials.
Electrical retailer Kesa sank 10 percent after the company warned sales growth has slowed after a strong end to the last financial year and it deferred plans to return cash to shareholders amid worsening trading conditions.
The warning knocked sentiment on other UK retailers, with Carphone Warehouse down 3.4 percent and DSG International down 9.7 percent.